Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @ianbremmer.
"U.S. Blames China's Military Directly for
David E. Sanger, New York Times
For the first time, Barack Obama's administration explicitly accused China's military of responsibility for cyberattacks on U.S. government computer systems. By some estimates, 90 percent of the cyber-espionage in the United States originates in China.
"Russia's Energy Bully Takes a Fall"
Alexandros Petersen, Foreign Policy
Is Russia's coercive use of natural gas exports to bully its neighbors finally unraveling? Will cheaper gas worldwide exacerbate Russia's "reverse dependence" on European markets?
"Japan's leading exporters say the weak
yen is helping them, to a point"
Gwynn Guilford, Quartz
Is Abenomics for real? It certainly had an impact on many exporters' first-quarter bottom line. The weaker yen accounted for 43.2 billion yen of Nissan's 174.4 billion yen operating profit (up almost 50 percent from the same period last year).
"In China, Power Is Arrogant"
Yu Hua, New York Times
In 2001, hospital officials in Shenzhen stipulated that nurses should "show precisely eight teeth when smiling." This piece addresses the "wacky and arbitrary nature" of many Chinese regulations.
"This Is The World's First Entirely
Andy Greenberg, Forbes
What happens when rapidly evolving technologies meet an age-old political debate? Twenty-five-year-old Cody Wilson is utilizing 3-D printers to print guns -- and is sharing the blueprints in downloadable open-source format on his website in a bid to undermine gun control efforts. Here is a disturbing documentary from Vice on the process and its implications.
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections by tweeting at us via @EurasiaGroup or @ianbremmer.
Celia Hatton, BBC News
What's worse than glow-in-the-dark pork? The recent craze in subpar Chinese product safety standards is all about baby milk formula.
According to official statistics, the murder rate in China surged from 10,000 in 1981 to 28,000 in 2000 ... and has since dropped steadily to 12,000. Is that credible?
Michael Kugelman, CNN
Seven of the countries that were ranked most food insecure in the 2012 Global Hunger Index have given up 10 percent or more of their total agricultural area. Some are calling the push to buy arable land in developing countries a new wave of colonialism.
Marc Maiffret, New York Times
The debate surrounding cyber challenges has reached a fever pitch. But the blame doesn't lie solely with aggressive perpetrators or unprepared victims: The infrastructure and software itself is insecure and prone to manipulation.
Eleazar David Melendez, Huffington Post
What is this bitcoin phenomenon all about? This piece gives a good overview of the rise -- and recent fall -- in the virtual currency's fortunes.
Katy Byron, CNBC
Which real-world countries are the geopolitical winners behind the Game of Thrones television show?
A generation ago, many wondered how many years would pass before American dominance and, by extension, the clout of Western-led financial institutions like the IMF and World Bank faced a serious challenge. So far, no single rival has proved its staying power. For better and for worse, the IMF and World Bank remain core components of international politics and development. And that's what makes collective action among the BRICS-Brazil, Russia, India, China, and South Africa-so intriguing. The BRICS carry considerable weight as models for the next wave of developing countries-particularly following an American-made financial crisis and ongoing turmoil in the Europe.
It's no surprise then that plans announced last month to create a BRICS development bank have generated so much buzz. In particular, the ability of leading emerging market governments to finance big infrastructure construction projects across the developing world has interesting potential implications.
Yet, for many of the same reasons that the BRICS have so far struggled to institutionalize a working partnership in other areas, this bank will take longer to build than its architects think and will never realize the grand ambitions of its most forceful advocates.
It's no secret that Brazil, Russia, India, China, and South Africa are home to quite different political and economic systems and face different sorts of challenges. Less well understood is the diversity of their interests in creating a bank. Questions of seed money, oversight, purpose, and where the bank might be headquartered are certain to arouse controversy.
But the larger problem is that all the BRICS except China are grappling with sharper-than-expected economic slowdowns-and Brazil, India, South Africa, and Russia are all looking to spend their revenue on infrastructure projects at home to help bolster growth. For the moment, none of them can afford to invest substantial sums to build someone else's roads, bridges, and ports.
These governments face a choice. They can contribute to a BRICS bank funded in equal (modest) parts by each member and lacks the capital to accomplish much. Or they can lend their names to a much-better funded institution that is thoroughly dominated by China.
Yes, Brazil's government is interested in promoting a South-South development strategy, but the Dilma Rousseff administration is now focused mainly on reviving domestic growth following a significant slowdown last year. Its strategy rests in part on using state development bank BNDES to fund ambitious infrastructure projects inside Brazil. If the BRICS bank can be used to finance projects outside Brazil to which BNDES is already committed, it might be useful, but don't expect the Rousseff administration to offer significant new cash commitments toward these projects.
Russia's government, also faced with sluggish growth, will talk up the need for a counterweight to U.S.- and European-dominated institutions, but tepid pledges of support for the bank from Russia's finance minister and the recent tragicomedy in Cyprus make clear that Moscow is not ready to finance its bid for greater international prestige with substantial sums of cash.
Political officials in India, where national elections loom next year, are too preoccupied with a steady stream of domestic troubles to devote much capital to a BRICS development bank, and the government remains deeply ambivalent about its often troubled relations with fast-expanding China. That's in part why India's finance minister has said that the BRICS bank will complement, not challenge, existing international lending institutions.
Then there is South Africa, a country with a growing middle class but chronic high unemployment and an economy the size of China's sixth largest province. The ruling African National Congress sees obvious value in deepening trade and investment relations with China, but its greatest near-term contribution to a BRICS development bank will probably be limited mainly to providing its headquarters a home.
Finally, the bank faces obstacles even within China, the one country than can afford to give it heft. China already has a development bank. It's the most powerful financial institution in the country, one that answers only to the State Council, giving it the status almost of a government ministry. In fact, though the China Development Bank and the China Export-Import Bank may lack the perceived legitimacy of multinational institutions, they don't lack for borrowers. Together, they already lend more to developing countries and companies -- more than $100 billion per year -- than the IMF and World Bank do, extending China's strategic influence throughout Africa and Latin America, in particular.
Why share credit and benefit for these efforts with the other BRICS, especially when the rest have so much less to contribute? And why give others a say in where Chinese funds are invested?
All five of these governments have an interest in choreographed displays of unity and rhetorical challenges to U.S. power. But like so many other aspects of BRICS cooperation, there is less to this bank than meets the eye.
Willis Sparks is director in Eurasia Group's global macro practice.
ALEXANDER JOE/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie - presented in no particular order. As always, feel free to give us your feedback or selections by tweeting at us via @EurasiaGroup or @ianbremmer.
Makes It: A Transformed Society, Economy, and Government"
Shannon K. O'Neil, Foreign Affairs
There are plenty of underappreciated bright spots in Mexico. This piece gives a compelling recent economic history of the country and spells out the risks and opportunities Mexico faces today.
Kurdistan the Taiwan of the Middle East?"
Kevin Sullivan, RealClearWorld
Is Kurdistan a rare winner in an ever-turbulent Middle East?
Oil and Gas"
Elisabeth Rosenthal, New York Times
How does energy use differ around the world? A staggering fact: New York State's 19.5 million residents consume as much energy as the 800 million residents in sub-Saharan Africa (excluding South Africa).
Kingdom's Problem with Religion"
Simon Scott Plummer, Standpoint
In 2011, there were an estimated 67 million Chinese Christians and rising. Some predict that in a few decades, Chinese Christians could outnumber those in the US (there are currently 170 million and falling). How will China's religion demographics affect its development?
Just Declare War on Apple? Sure Looks Like It"
Gordon Chang, Forbes
China: Unparalleled arrogance, undisclosed agenda"
Real People's Daily"
Jonathan Dehart, The Diplomat
It seems like an anti-Apple campaign is brewing in China-but who is behind it? What's the motive? Apple CEO Tim Cook's January prediction that China will become the company's largest market looks inauspicious in hindsight. One thing is for sure: social media is exploding in China and Weibo is upending the calculus of information flow and control.
As the National People's Congress (NPC) -- China's rubber stamp parliament -- concluded on Sunday, China's historic leadership transition came to an end after more than two years of political intrigue and factional infighting. In the carefully choreographed tradition of previous transitions, the 3,000 parliamentary delegates convened in Beijing and elected the new government with an overwhelming majority. Xi Jinping was voted president with one opposing vote, just like Mao Zedong in 1949, and Li Keqiang became China's new premier, with three opposing votes.
But something was decidedly different this time around. It was a combination of the smog-filled skies, the reports of thousands of dead pigs floating in Shanghai's water source, and a growing public disenchantment with the Communist Party. Expectations for change were high, and tolerance for another orchestrated Communist gathering was low.
The signals coming from the NPC reflected a clear recognition from Xi and Li that something has to change. Over the past year, the party's domestic credibility has taken a serious beating: from the ouster of Chongqing Party Secretary Bo Xilai last March in a tale of murder and betrayal fit for a novel to foreign press accounts of unseemly wealth amassed by family members of Xi and outgoing premier Wen Jiabao to strikes earlier this year by journalists at liberal media outlets.
At the NPC, the leadership moved to address popular criticism. By dismantling two highly unpopular administrations -- the Railways Ministry and the family planning commission -- China's new leaders made the first real attempt to streamline the bureaucracy since reformer Premier Zhu Rongji in 1998. They vowed to improve food safety and fight environmental degradation, two issues of great public concern. The government also pledged to reduce the state's role in the economy and society.
Thus far, these moves amount to political symbolism rather than substantial change, but there is a lingering sense that this time is different. Since coming to power in November, Xi Jinping has consolidated his power base in the party and army more rapidly than his predecessor. He also has greater credibility and a more appealing public persona than the outgoing Hu Jintao, in part thanks to the aggressive promotion of the anti-corruption and frugality campaigns.
But while Xi Jinping is better placed than his predecessors to take on that broad agenda, the high expectations that come with that recognition are not always helpful. The new president will spend the year setting priorities and consolidating internal support for them even as pent-up internal and popular pressure on the young administration continues to build. Xi will have to move quickly. Beyond the signals, he will have to give substance to his reform agenda by the third plenum in the fall of 2013. The symbolism will not be lost on Chinese leaders, since it was Deng Xiaoping who also announced his transformative "reform and opening up" policy at the third plenum in 1978.
Only then will it be clearer if this time it really is different -- and if Xi's the one to bring about lasting and substantive change for a party and a country that needs it.
Michael Meidan is an analyst in Eurasia Group's Asia practice.
WANG ZHAO/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
David Horowitz, The Times of Israel
Israel's quantity of natural water per capita is the lowest in its entire region. But it seems Israel's water crisis may be a thing of the past. Why? More than 80 percent of Israel's purified sewage is reused for agriculture. The next best in the OECD? Spain, at 18 percent.
Stephen Brown and Holger Hansen, Reuters
Yes, Spain's unemployment rate is over 26 percent. But elsewhere in the Eurozone, it's a different story. Germany's unemployment rate is at its lowest since reunification in 1990 -- and Berlin is actively recruiting certain skilled labor.
In Italian elections this week, voters set a post-war record ... for lowest turnout.
Simon Shuster, TIME
In a recent study, a group of academics analyzed a random sampling of 25 dissertations from the history department of Moscow Pedagogical State University. They found that all but one had been "at least 50 percent plagiarized." So how high up the ranks does plagiarism go? Perhaps more to the point, how high up the ranks will Medvedev's campaign to weed out plagiarism be permitted to go?
Kenneth G. Lieberthal, Brookings
This piece takes a realistic approach to highlighting potential common ground on cybersecurity between the United States and China.
Katherine Maher, Foreign Policy
Have you ever thought of the internet as unclaimed territory, awaiting a basic framework for division of sovereignty? You're not the only one -- a lot of nations have, too.
MENAHEM KAHANA/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections by tweeting at us via @EurasiaGroup or @IanBremmer.
Craig Whitlock, Washington Post
Hindsight is 20-20. In light of recent events in Mali and Algeria, this is an interesting look back on a decade of U.S. counterterrorism efforts in Africa.
Lars-Olva Beier, Spiegel Online
With China slated to replace North America as the world's #1 film market by 2020, navigating the Chinese market is increasingly difficult -- and necessary.
Jonathan V. Last, Los Angeles Times
There are 38 million people living in America who were born somewhere else. How do global fertility rates shape U.S. immigration -- regardless of policy?
Ramy Inocencio, CNN
Posting a video of New York in flames? Not cool, North Korea. Using Michael Jackson's "We Are the World" as the background music? For shame. Lifting parts of the video from the latest Call of Duty video game? That's where YouTube draws the line.
To understand Kim Jong Un, it's important to put him in historical context. In the post-war era, North and South Korea's economies were roughly on par. Today, output per capita in South Korea is over 17 times that of the North.
Bill Simmons, Grantland
While it's not political per se, reporting on doping requires a great deal of diplomacy -- especially if you want to make the case that "innocent until proven guilty" does not always apply. This is one of the boldest, most honest pieces of sports journalism you'll ever read.
PASCAL GUYOT/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
China has been all over the news this week, with the New York Times hacking episode dominating headlines. But recent stories related to China venture much further than cyberspace. This week's must-reads has a China theme.
1. "The resource race: China
dips toes in Arctic waters"
Christoph Seidler, Spiegel Online
This piece outlines China's new ventures to the Arctic -- and how China's diplomatic tactics are shifting.
2. "China's love affair with
cars chokes city air"
Louise Walt, Associated Press
Over the last decade, the automobile industry has skyrocketed in China. Last year, 13 million cars were sold. But what kind of environmental impact will such a rapid shift have?
3. "Making room"
In 2010, there were roughly 4,000 cities with populations of 100,000 or more. (China had about 400 of those). But between 2010 and 2050, the UN anticipates that the world's urban population will double. This piece reviews a new book by Shlomo Angel called Planet of Cities -- the book predicts how future urbanization will play out. Here's an interesting rule of thumb: usually, a country's biggest cities break down such that the largest city has twice the population of the second largest, three times that of the third largest...etc.
4. "Chinese labour pool
begins to drain"
Jamil Anderlini and Ed Crooks, Financial Times
China's working age population unexpectedly shrank last year -- a trend that wasn't meant to begin until later this decade. What do China's shifting demographics mean for the economy?
5. "Mexico: the new China"
Chris Anderson, The New York Times
Is cheaper always better? This piece highlights some of the advantages of using Mexican manufacturing from an American business perspective. Anderson argues that it allows for more product evolution, innovation, and customization -- and Chinese labor is getting less and less cheap.
Note: Today is the seventh in a series of posts that detail Eurasia Group's Top Risks for 2013
East Asia's geopolitical stability will continue to deteriorate this year. Countries such as the Philippines, Vietnam, and Japan will take tougher stances on territorial disputes with China and seek to involve Washington more closely in these issues. But China's new government will find it difficult to compromise and may even take more forceful positions given its need to consolidate internal support and channel growing nationalism. Meanwhile, the US will continue to enhance engagement with Asian partners -- particularly on the economic side -- which will raise skepticism in Beijing.
The most worrying concern during the early part of 2013 will be the Senkaku/Diaoyu islands, claimed by both China and Japan. Tensions surrounding the islands spiked in late 2012 following the Japanese central government's decision to purchase several of them from their private owners. The growing presence of Chinese ships and aircraft in surrounding waters is stoking nationalist sentiments in Japan and increasing the risk of a clash that could quickly escalate and ensnare the world's three biggest economies in an ugly dispute.
In 2013, regional governments will lean toward political considerations more than economic ones. In Japan, a new government led by the Liberal Democratic Party (LDP) Prime Minister Shinzo Abe will become more assertive on foreign policy issues. The LDP was able to capitalize on nationalist sentiments in its campaign, and Abe will carry through with some of his promises in 2013 by establishing a more assertive national security and foreign policy posture. Abe will also bolster the U.S.-Japan security alliance and likely commit Japan to joining the Trans-Pacific Partnership (TPP) negotiations. China will regard such moves as confrontational.
Meanwhile, Beijing's appetite for compromise will be limited. China's political transition will make it more difficult for Beijing to be flexible on foreign policy issues. The country's new leaders will need to consolidate internal support. Moreover, growing middle-class expectations and concern over the state's control of information are expected to encourage a more nationalistic foreign policy. If Beijing faces a foreign policy test, the incoming administration might feel the need to demonstrate its foreign policy mettle and avoid being seen as capitulating to outside interests.
Policies toward Asia from the U.S. will not change much: The rebalancing of its attention toward the region will continue, with more substance on the economic than on the strategic side. In particular Washington's trade negotiators will focus on negotiations for the TPP talks.
The South China Sea will be another hotspot. There has been relatively little tension there in recent months, but that calm is unlikely to continue. Vietnam and the Philippines, in particular, will maintain their aggressive postures toward China. Neither country has an interest in provoking a military conflict, but domestic politics make it difficult to back down without a perceived (even if minor) but unlikely concession from Beijing.
Later this week, we'll profile Risk #8: Iran
GOH CHAI HIN/AFP/GettyImages
Note: Today is the second in a series of posts that detail Eurasia Group's Top Risks for 2013.
As their people grow bolder in their quest for information, China's leaders will only tighten the restrictions they place on cyberspace. China is, in fact, embarking on a worrying experiment: It is the only major power that is attempting to preserve an authoritarian system in the information age. This gigantic task will demand a great deal of leaders' attention, raise tensions among the Chinese people, and reverberate outside of China's borders through the country's foreign policy.
China's Great Firewall and unpredictable censorship regime have more or less enabled its leaders to manipulate the information accessible to its citizens. But these tools are fast becoming insufficient, a fact made clear by strikes at a major Chinese newspaper this week. China's internet users stand at more than half a billion and counting. Growing demands for transparency and information leaks that embarrass the government are inevitable, as evidenced by the public's growing awareness of high-level corruption scandals.
The Communist Party appears poised to implement a new phase of information control that is part reactive and part proactive. On the reactive side, the government has begun to disrupt virtual private networks used by many foreigners, and even some Chinese, to circumvent the country's firewall. The government will proactively attempt to capitalize on technological tools by using the internet and social media such as Weibo (China's version of Twitter) to convey its own messaging.
The friction between the government's attempts at self-preservation and the population's desire for more transparency will be the greatest political challenge for China in 2013. While the stability of the government is unlikely to be shaken in 2013, this internal conflict will distract leaders and encourage them to deflect public anger outward. Finding foreign scapegoats is a time-honored tactic that the Communist Party is likely to repeat this year.
There are plenty of foreign targets to turn to. Territorial tensions are high and are only exacerbated by the U.S. pivot to Asia, which has emboldened countries such as the Philippines to more aggressively push their interests. The largest risk is an increase in nationalism from China toward Japan, especially given the growing tension surrounding outstanding territorial disputes between the two countries.
Ultimately, though, China's attempts to limit information run counter to its stated desire to develop an innovative economy. How can China's handful of vibrant IT firms and internet giants become global competitors while operating under a regime that restricts online information? How can China become a dominant player in the global economy if it is disconnected from the global information society? These are inherent contradictions that the new Communist Party leadership will have to resolve.
On Monday, we'll profile Risk #3: Arab Summer.
Note: Today is the first in a series of posts that detail Eurasia Group's Top Risks for 2013.
Since the onset of the financial crisis in 2008, investors and companies have focused mainly on risks in developed world markets. But as conditions in the U.S. and Europe continue to improve in 2013, the most worrisome risks will again come from emerging market countries. These countries are fundamentally less stable than their developed world counterparts, and some of their governments used a period of favorable commodities prices and the benefits from earlier reform to avoid the tough choices needed to reach the next stage of their political and economic development.
Some of these emerging market nations face more difficult challenges than others, and much depends on the degree of political capital each leader will have in order to make unpopular but necessary changes. These countries can be divided into three broad categories according to the complexity and immediacy of the risks they face and the longer-term upside they offer.
The first category includes the best bets:
The second category of emerging market economies are at risk of considerable volatility.
Lastly, there are the underperformers, those countries where risks will overshadow returns.
On Friday, we'll profile Risk #2: China vs Information.
HOANG DINH NAM/AFP/Getty Images
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
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
1. "Freshmen From Kennedy to Double Amputee Join Polarized
Steve Walsh, Bloomberg
An interesting glimpse at some of the new personalities in the 113th Congress, a group of representatives that runs the gamut of conceivable paths to Washington -- and the new Congress breaks records, with 81 women in the House and 20 women in the Senate (both all-time highs).
How to reconcile the similar economic growth we've seen in Mali and Ghana with their starkly different development trajectories? There's no simple answer, but this piece is a good primer on many of the variables involved.
3. "The Art of Snore"
John Arquilla, Foreign Policy
On US defense spending, are there more than budget cuts to fear? Is there an innovation deficit? Arquilla outlines what he perceives as shortcomings in the current military spending approach -- as well as some interesting solutions.
4a."Myanmar Launches Airstrikes on Kachin Rebels"
Simon Roughneen, Christian Science Monitor
4b."Burma's Military Follows Own Course in War against Kachin
Jonathan Manthorpe, The Vancouver Sun
When Barack Obama and Hillary Clinton visited Myanmar in November, it was an historic occurrence -- the first-ever US presidential visit to the country, and a firm endorsement of the recent reforms that have taken place. But while national hero and opposition leader Aung San Suu Kyi warmly greeted the visitors, she also admonished that "we have to be very careful that we are not lured by a mirage of success." Fighting between the military and Kachin rebels in the north has clouded reform efforts. And, as Jonathan Manthorpe explains, Myanmar's relations with China -- and water security issues -- underpin much of the issue. These are two sources of conflict that are only trending upward throughout the region as a whole.
5. "Better Than Human"
Kevin Kelly, Wired
At Eurasia Group, we've devoted a lot of attention to the long-term labor force impact that the advent of robotics and 3D printing will have, particularly on emerging markets like China, where the country's greatest resource -- cheap labor -- could very well become one of its biggest obstacles as its citizens are displaced from manufacturing jobs following technological advances. Kelly looks on the bright side of a robotic future, outlining the opportunities for innovation and productivity that come with a mechanized work force. His vision is a bit rosy, but it's a useful counterweight to the much-discussed downside risks.
By Ian Bremmer
A few days ago, I took a quick, informal survey around Eurasia Group on power and global politics. The question: Who are the world's most powerful people? We're defining power as "a measure of an individual's ability to (singlehandedly) bring about change that significantly affects the lives and fortunes of large numbers of people."
Here's what we came up with:
1. Nobody -- In a G-Zero world, everyone is waiting for someone else to shoulder responsibility for the world's toughest and most dangerous challenges. The leaders you'll see named further down this list are preoccupied with local and regional problems and don't have the interest and leverage needed to take on a growing list of transnational problems.
2. Vladimir Putin -- In Russia's personalized system, this is still the person who counts. He isn't as popular as he used to be, and his country has no Soviet-scale clout or influence, but no one on the planet has consolidated more domestic and regional power than Putin.
3. Ben Bernanke -- The world's largest economy is still struggling to find its footing. To help, no one has more levers to pull and buttons to push. The world needs the U.S. economy back on its feet, and Bernanke has more direct influence than anyone else on when and how that happens.
4. Angela Merkel -- For the moment, her commitments are the glue that binds Europe. Merkel's ability to bankroll Europe's emergency funds, win concessions from the governments of cash-strapped peripherals, and maintain solid popularity at home continues to be a remarkable political and policy achievement.
5. Barack Obama -- Even at a time when Washington is focused almost entirely on Washington, the elected leader of the world's most powerful and influential country carries a lot of water. The Obama administration will watch the eurozone from the sidelines and keep commitments in the Middle East to a minimum, but America will continue to broaden and deepen security and commercial relationships in East Asia, and Obama's decisions on how far and how fast to move will be crucial.
6. Mario Draghi -- Europe's backstop. Europe's Central Bank has kept the continent's blood flowing at a crucial moment in its history, and his work is far from done.
7. Xi Jinping -- China's forward progress is the world's most important variable, and Xi Jinping is now the man behind the wheel. Over the next decade, economic and political reforms will be needed to keep China on track, and Xi will make some difficult (and profoundly important) decisions.
8 (tie). Ayatollah Khamenei -- The supreme spiritual and political authority in a country at the heart of a volatile region. Halfway through 2013, Ahmadinejad will give way to a new president, but it is still Khamenei who will decide how the international fight over Iran's nuclear program plays out -- and what the future holds for the Islamic Republic.
8 (tie). Christine Lagarde -- The world's fire marshal. Here is that rare leader whose contribution will be crucial in multiple regions at once. But nowhere will the IMF's work be more important than in keeping Europe on track.
10. King Abdullah Bin Abd al-Aziz -- King of a kingdom with a unique power to move markets. The Saudi monarch is not in the best of health, but the choices he makes in determining who lead the world's hydrocarbon powerhouse into the next generation will help shape the entire global economy for many years to come.
What do you think?
Ian Bremmer is president of Eurasia Group.
ALEXEI NIKOLSKY/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie-presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
1. "Al Qaeda 3.0:
Terrorism's Emergent New Power Bases"
Bruce Riedel, The Daily Beast
In a world where international governance is breaking down, leaders are focused more on domestic than on foreign policy challenges. This trend extends to al Qaeda, an organization transitioning from global to local goals.
2. "India's African ‘Safari'"
Sudha Ramachandran, The Diplomat
We hear a lot about the US and China's conflicting investment approaches in Africa, but there's precious little written on Africa's fourth largest trading partner: India. With trade increasing by a factor of 17 over the last decade, India-Africa relations are becoming much more interesting.
3. "How Crash Cover-Up
Altered China's Succession"
Jonathan Ansfield, New York Times
How will Beijing's leadership manage the challenges that come with an era of more open information? What will the rest of us learn about the Chinese leadership's taste in cars, clothes and once-hidden power politics?
4. "Merkel's mastery of
Michael Fry, The Scotsman
Is Angela Merkel the most talented politician in the world? Her domestic political tactics shed light on her policies with regard to the Eurozone and beyond.
5. "A free-trade agreement
David Ignatius, The Washington Post
Though still on the drawing board, the Trans-Pacific Partnership has far-reaching security and economic implications for North America and the Asia Pacific region. Progress on an Atlantic equivalent seems beyond the horizon. But is an ‘economic NATO' already in the planning stages?
6. "The mother of all
worst-case assumptions about Iran"
Stephen M. Walt, Foreign Policy
Would a nuclear Iran carry "shattering geopolitical significance?" This piece overstates its case at times, but it's a question that demands consideration.
The Weekly Bonus:
"Floating Housing (And
Golf Courses) For Post-Climate-Change Island Paradises"
Co.EXIST blog, Fast Company
In a G-Zero world, don't expect political leaders to tackle climate change. An ineffectual climate summit meeting in Doha this week makes that all the more obvious. If climate change continues unabated, the Maldives will end up underwater. The government knows it, hosting a cabinet meeting on the ocean floor in full scuba gear in 2009, and inquiring about land purchases abroad. But even the most daunting risks come with opportunities, however whimsical they may seem.
By Michal Meidan and Carsten Nickel
There are many reasons why China's economy has begun to cool, but the dramatic slowdown within the European Union, China's largest trade partner, is among the most important. Fears for Europe's growth and stability weigh heavily in Beijing, and China's risk-averse leaders are willing to invest in Europe's recovery.
But Beijing won't risk throwing good money after bad with substantial bailouts for risky peripherals like Spain, Italy or Greece. That would play badly inside China, where public perception that government is bailing out wealthy Europeans during a slowdown at home wouldn't play well. Greek haircuts earlier this year left Chinese investors with huge losses, and to invest in the European Financial Stability Facility (Europe's current bailout fund) is to form closer ties with meddlesome bureaucrats in Brussels.
Instead, China is increasing its direct investment in Germany, still Europe's economic engine, and, by extension, in Berlin's ability to manage crises and restore the continent's growth. That's good news for German Chancellor Angela Merkel, who sees the strategic importance of improving relations with the world's other leading manufacturing-dependent surplus economy. China has become Germany's third-largest export market behind France and the United States, and with demand among Germany's neighbors unlikely to increase anytime soon, German manufacturers will grow increasingly dependent on China and its markets.
Economic ties between China and Germany began to tighten following the onset of the financial crisis in 2008 as demand generated by the Chinese stimulus plan became an important source of Germany's recovery. Closer ties with German automakers and producers of renewable energy help Chinese firms develop new technologies and climb the value chain.
is a downside for Germany. Expanded commercial ties will force Merkel's
government to contend with domestic concerns that China's labor practices fall
far short of acceptable standards and that German companies doing new business
in China will have their intellectual property stolen. But Chinese purchases of
German Bunds will help Merkel ease domestic fears that German support for
Eurozone weaklings will sap the country's strength. That's why Merkel's once
vocal criticism of China's human rights record has all but disappeared -- and why Berlin,
unlike European institutions in Brussels, has yet to demand equal access to Chinese
That's crucial for China. Beijing will continue to pay lip service to its ties with EU institutions, but growing ties between Beijing and Berlin will complicate Brussels' efforts to develop a common foreign and trade policy toward China, increasing Beijing's bargaining power with individual European partners.
Today, when China's leaders look toward Europe's core, they see a weakened France, a marginalized Britain, and a rising Germany. By betting on Berlin, China is hoping that Germany will use its increasingly decisive role in EU decision-making to provide China with market economy status, and the commercial advantages that come with it, and even to help lift Europe's arms embargo on Beijing. For its part, Germany is hoping ties with China can boost growth at a moment when it's badly needed.
For the moment, it's an increasingly profitable partnership.
Michal Meidan is an analyst in Eurasia Group's Asia practice. Carsten Nickel is an analyst in the firm's Europe practice.
Sean Gallup/Getty Images
By Nicholas Consonery and Willis Sparks
For China's top leaders, this is not a good time for confrontations with the neighbors. The country's once-a-decade leadership transition is expected to unfold this fall, and neither outgoing nor incoming officials want uncertainty or ugly international headlines to interfere with the official choreography.
Thus the worry that Asian governments like the Philippines and Vietnam, emboldened by a commitment from Washington to maintain a robust strategic presence in the region, are pushing more aggressively to assert territorial claims in the South China Sea. More worrisome still, China's leaders face patriotic pressures from within for a forceful response.
China and its neighbors could be working together on joint oil and gas exploration in these disputed waters. Proven and undiscovered oil reserves in the South China Sea are estimated to be as high as 213 billion barrels, according to a 2008 report from the U.S. Energy Information Administration. If accurate, that's larger than the proven oil reserves of all but Saudi Arabia and Venezuela. But territorial disputes continue to block efforts to prove these estimates, and the potential for open hostilities in the area is growing, threatening to disrupt trade flows and stoking regional tensions.
The most recent conflict is the impasse
between the Philippines and China over the Scarborough
Shoal, a small island 100 miles off the coast of the Philippines
claimed by both countries. In April, Philippine naval vessels discovered
Chinese fishing boats in a lagoon of the Scarborough Shoal, provoking a three-month
standoff in which Beijing used trade barriers to pressure Manila, which called
on Washington for help. Though the standoff seemed to have been resolved in
June, there are still Chinese fishing boats in the shoal.
Manila is pressing the issue both to stoke national pride at home, to justify greater defense spending, and to draw the U.S. deeper into territorial disputes. Vietnam has similar motivations, though Hanoi appears to have less appetite for tension than Manila at the moment. Neither Chinese neighbor wants to punch toe-to-toe with Beijing, and cooler heads are always likely to prevail. But confrontations at sea can spin beyond the control of state officials back on shore.
There is a similar problem in Beijing. When Chinese officials discuss how best to manage territorial claims in the South China Sea, there are lots of negotiators seated around the table. Local leaders, maritime police, customs and border officials, as well as representatives of national oil companies and the Chinese Navy each have their interests to assert. Any of these actors can play to increasingly hawkish public opinion to operate outside the limits set down by senior leaders.
That's why, though the leadership would like to put a lid on territorial tensions, China has been making so much South China Sea news in recent weeks. Two weeks ago, the state-owned China National Offshore Oil Company (CNOOC) opened nine blocks for exploration in waters also claimed by Vietnam. Not long after, a spokesperson for China's Defense Ministry announced that the navy was conducting combat-ready patrols in the area.
In months to come, China's top leaders will do their best to strike a delicate balance-to appease belligerent voices at home and within the government while reassuring outsiders that China is not becoming more aggressive. But each time one of the neighbors makes another provocative move, Beijing's balance becomes a bit harder to maintain.
Nicholas Consonery is an analyst in Eurasia Group's Asia practice. Willis Sparks is an analyst in the firm's Global Macro practice.
HOANG DINH NAM/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
Though the curious case of blind Chinese dissident Chen Guangcheng has badly embarrassed China's leaders, it has provided them one important benefit -- it has diverted attention from the far more dangerous story of Bo Xilai. Regardless of the outcome in either case, the Communist Party's image has been badly tarnished. For a Chinese government that seems bent on investing in soft power, these last few months have offered clear reminders that soft power cannot be bought. It must be earned.
For a Chinese government that prefers to keep its differences behind closed doors, the Bo Xilai episode is a nightmare, in part because the involvement of the U.S. and British governments in the case has brought an unusual degree of international media scrutiny. (One of Bo's deputies briefly took refuge in the U.S. embassy, and Bo's wife has been implicated in the murder of a British businessman.) China's familiar tools of propaganda have been overwhelmed by frenzied speculation about the case in the Western press and China's social media echo chamber -- yet another reminder that Beijing can no longer afford to ignore Sina Weibo, China's version of Twitter.
The party leadership has dismissed the Bo Xilai saga as a sideshow and Bo himself as an aberration within the country's otherwise upstanding roster of senior officials. But little of China's blogosphere appears to be buying it. Instead, Bo's story signals for many that China remains a corrupt and opaque place, that the unbridled capitalism practiced in China has mainly benefited politically-connected VIPs, and that greed has infected the leadership right to the top.
And though the drama surrounding Chen Guangcheng has given the public something new to speculate about, in some ways, the story reinforces the cynicism that Bo Xilai has exposed. Chen and Bo -- a powerless and once illiterate legal activist and a powerful political scion who long stood above the law -- seem polar opposites. But they have something important in common; both were left without a place to hide when the leadership decided they should be punished.
Few within the country believe that Bo or his wife will have their day in court, reinforcing public fear that average citizens have no real protection within a system manipulated for the benefit of the party. That Chen, like Bo Xilai's deputy, first sought sanctuary in the U.S. embassy underscores a point not lost on the Chinese public: The United States, not China's own government, offers protection of last resort in times of political turmoil.
These stories are engendering a growing trust deficit between the government and the informed public -- the very elites that the party counts as its crucial constituency. A perception of systemic "rot from within" and the lack of legitimacy it implies undermine the regime's monopoly hold on domestic political power.
Despite Premier Wen Jiabao's constant talk of political reform, the last decade of the Hu Jintao/Wen Jiabao administration saw an economy that raced ahead and a political system that changed very little. But to repair this latest damage to its "brand," the party may feel it has to produce some real change. Some within the leadership are already using this opportunity to push for political liberalization. In his closing arguments as premier, an increasingly legacy-conscious Wen Jiabao is making a final pitch for real political reform. But Wen is a lame duck.
Over the course of the next few months, China will introduce a new generation of top leaders. Any political changes they might produce are unlikely to fundamentally recast Chinese politics or to appear soon. But they may soon find that delivering go-go growth is no longer enough. They may find that, particularly in the online public square provided by social media, a growing segment of China's people will expect a new degree of accountability -- and a new kind of change.
Damien Ma is an analyst in Eurasia Group's Asia practice.
Lintao Zhang/Getty Images
By Jiakun Jack Zhang
In an attempt to reorient its economy toward consumption and allow its masses to share more of its record growth, China is quietly undertaking the largest social welfare project in human history.
Decades of rapid economic growth have created vast inequalities, and populism is consequently on the rise. China's 99 percent feel left out of their country's rapid development and are increasingly lodging their complaints online. A recent study of Chinese internet trends in 2011 reveals a shift away from nationalism toward issues of public welfare. The government is paying greater attention to social media and taking notice of this trend. In 2011, mentions of Weibo (Chinese twitter) in The People's Daily (the Party mouthpiece newspaper) increased by an astonishing 83,900 percent.
In its battle to retain political legitimacy, the Chinese Communist Party has announced that it will sacrifice growth for development quality. It realizes that raising the GDP growth bar is no longer adequate and has launched its own version of the New Deal by introducing ambitious reforms and hiking spending on affordable housing, social security, healthcare, and education. If China's leaders bungle this massive undertaking, it will spell trouble for the country's state capitalist system.
If they get it right, the next five years, covered by the 12th Five Year Plan (FYP), could prove to be the most transformative in modern Chinese history. As Beijing attempts to extend the social safety net to cover all of its 1.3 billion people, it could reshape China's economic landscape by furthering urbanization, bolstering domestic consumption, creating a better-educated workforce, and improving social stability. There are two simultaneous goals: preserve the legitimacy of the political system and contribute to the country's economic re-balancing.
For a nominally communist country, China's lack of a social safety net is somewhat ironic. When Beijing dismantled the country's communes and privatized state-owned enterprises in the 1980s and 1990s, China's ‘iron rice bowl' welfare system collapsed. The national savings rate rose during the 2000s as Chinese households struggled to pay for increasingly expensive housing, healthcare, and education while putting away enough for retirement. Ordinary citizens had little choice but to deposit their savings into state-owned banks, earning negative real returns. The savings glut fueled the country's export- and investment-driven model, but household consumption lagged.
This model seemed to work until the global financial crisis shook Beijing out of its complacency. After several abortive attempts at reform over the past decade, China's leaders finally seem committed to mending the country's broken social safety net. The government plans to construct seven million affordable housing units in 2012 alone-the project is estimated to cost 1.3 trillion yuan ($198 billion) and aims to make 20 percent of the housing market "affordable" by 2015. Last year it implemented regulations that will provide basic pension and insurance coverage for all citizens and ramp up spending by 21.9 percent to 575 billion yuan ($91 billion). A new set of health care reform goals were set in the 12th FYP: universal health care, drug pricing reform, and public hospital reform. The 2012 appropriation for healthcare is 203 billion yuan ($32 billion), an increase of 16.4 percent from 2011. Education spending is slated to expand by 16.4 percent to 378 billion yuan ($60 billion). For more details, refer to the Ministry of Finance Budget Report for 2012.
Yet pushing through reforms will prove a significant challenge for China's fifth generation of leaders. The window for reform is rapidly closing and implementation will be hindered by entrenched interests and bureaucratic inefficiencies at the local level. China's economic growth is slowing and its demographic advantage is fading. The government acknowledges that while its revenues are projected to shrink, its expenditures will expand in order to finance these new entitlement projects. The Communist Party risks losing political legitimacy and will confront growing social unrest if these efforts stall or fail. Political reforms may be the only way to create a civil service capable of administering these programs effectively (and without corruption). Having recognized that headline-grabbing GDP growth isn't enough, China's political system will have little to fall back on if it can't make this New Deal work.
Jiakun Jack Zhang is a researcher in Eurasia Group’s Asia practice.
PETER PARKS/AFP/Getty Images
By Michal Meidan
A growing economic juggernaut and rising political power, China has many reasons to look to the Middle East: to import oil, extend its diplomatic influence, diversify its trade ties, and undermine U.S. hegemony. In that context, it seems hardly surprising that Beijing (alongside Moscow) vetoed a recent U.N. Security Council resolution on Syria and set aside its commercial dispute with Iran to conclude an oil import deal -- undermining U.S. and European sanctions on Tehran.
But Beijing's Middle East strategy is hardly the coherent, well-thought-out doctrine that some believe. Instead, it's the product of a number of (sometimes competing) domestic interests that must be coordinated each time a crisis unfolds. Worryingly for Beijing, as China's commercial ties to the Middle East increase, it will inexorably become more involved in the region's politics. In the process, the risk of antagonizing an important commodity supplier, getting on the wrong side of Washington, or fueling unwanted domestic debates will become more costly and more complicated.
Some argue, simplistically, that when China blocks pressure on Iran to protect its commercial relations with that country, it pays no price for it. The reality is not nearly that simple.
First, Beijing's decisions on Iran and Syria have clearly irked Washington. Secretary of State Hillary Clinton dubbed the Syria veto "despicable." Moreover, ongoing oil trading between China and Iran has already led Washington to slap sanctions on a Chinese trader. In a year of presidential elections in the U.S. and political turnover in China, when both sides are trying to keep tensions at bay, Middle East politics will burden an already complicated relationship with an unwelcome irritant.
But Beijing has more than the United States to worry about. Take China's ties with Saudi Arabia, which provides China with almost one fifth of its oil. Beijing's reluctance to support Western-led sanctions on Iran isn't going down well in Riyadh either. Nor has China's decision to veto the U.N. Security Council's Syria resolution, a choice that Beijing claims was intended to prevent the situation on the ground from escalating further.
Finally, several diplomatic principles -- non-interference in a third country's sovereignty, support for non-proliferation, China's rise as a responsible stakeholder -- are increasingly being called into question by other governments. The decision to veto the U.N. Security Council resolution on Syria may have been motivated by diplomatic principles of non-interference in a country's sovereignty and by Beijing's desire to prevent the situation from getting worse, but it has plainly damaged popular perceptions of China elsewhere in the region, and Premier Wen Jiabao's criticism of the Iranian nuclear program rings hollow to Western ears.
When thinking about its foreign policy goals, does Beijing really want to provide the security framework for the Middle East? These are difficult debates that Chinese leaders must have, but they will certainly want to postpone them until after Beijing's leadership transition is complete next year.
In short, the more deeply Beijing becomes involved in the Middle East, the more complicated its foreign relations and internal policy-making processes become -- and the more China has to lose. The choice between alienating an oil supplier, challenging an important trade partner and a global political power or opening up its diplomatic principles for debate is one that Beijing would like to avoid. But as its global reach extends, so will the trade-offs it has to make.
By Damien Ma
If you're following all things China, the two memes trending for the last week or so have been the pre-trip musings on Chinese Vice President Xi Jinping's American tour and the Jeremy Lin show. What connects the two? Well, basketball.
After spending barely two days in Washington, Xi will travel to L.A. to hobnob with local politicians and businesspeople. In his down time, he is supposed to take in a Lakers game. Incidentally, Lin and his Knicks defeated the Lakers last week, when the Harvard grad and overnight NBA sensation put up a career-high 38 points that dazzled even Kobe Bryant. That Lin, a Chinese-American, and Xi, the Chinese leader who will preside over the NBA's largest potential market, are cementing U.S.-China links on the court should make NBA Commissioner David Stern smile. After a rough start to the season and with Chinese fans seeking a post-Yao Ming player to champion, "Lin-sanity" may be just the spark needed to revive the flagging franchise on both sides of the Pacific.
For his part, Xi's appearance at a Lakers game is a feat of public diplomacy that will draw comparisons to Chinese patriarch Deng Xiaoping's memorable first visit to the U.S. On that trip, Deng donned a cowboy hat at a Texas rodeo and tried out a simulator in NASA's Houston headquarters. Whether Xi is deliberately attempting to mimic Deng's charm offensive is anyone's guess. But such an effort will not go unnoticed by the American public, which tends to favor leaders with a touch of the "common man." This may be just what Xi has in mind: to project an image of affability and ease.
To be sure, optics matter a great deal on these occasions, especially when a Chinese official is thrown into the unrelenting punditry of the American media. President Hu Jintao always seemed maladjusted in the freewheeling environment, appearing wooden and somewhat nervous during his public appearances with President Barack Obama last year. Xi, in his subtle way, may also be trying to draw a contrast between himself and China's current leadership, therefore. He will have to be careful not to outshine Hu before he is fully in command, however, or to appear too enthusiastic about American culture.
Either way, Xi's likely attendance at the Staples Center is a small step forward for soft power diplomacy that, if continued, should help to reduce mutual suspicions and overcome the perception that the Chinese political system is opaque. But it will still be a long time before China's top leaders are truly comfortable with the U.S. media and can speak off script. When a Chinese presidential aspirant is bold enough to make an appearance on Jon Stewart, well, then we'll be looking at truly different U.S.-China relations.
Damien Ma is an analyst in Eurasia Group's Asia practice.
Chris Chambers/Getty Images
Today, we turn to risk #7 in our series of posts on Eurasia Group's Top Risks for 2012 and answer the most common questions we've gotten about it.
Here's a summary:
China -- Regional tension: A string of U.S. foreign-policy successes in Asia -- and the damaging of China's brand in the region -- have emboldened China's neighbors. The risk in 2012 is that Vietnam or the Philippines may test just how far U.S. security assurances will take them, provoking China into a maritime dispute. China has its own set of challenges in 2012, raising the risks of miscalculation and escalation.
Q- Why are China's neighbors feeling more assertive?
A- The U.S. had a very good year in Asia in 2011, while China's reputation suffered from an overly aggressive regional posture in 2010. The U.S. made gains in Asia on both security ties and economic diplomacy; it persuaded Japan to enter the Trans-Pacific Partnership trade talks, secured the stationing of 2,500 U.S. Marines in Australia; and will send 24 F-16 fighter jets to Indonesia and new coastal combat ships to Singapore. China's neighbors welcome the U.S. presence, because they recognize the importance of economic ties with China but don't want to become overly dependent on Beijing either economically or politically.
Q- How might China's neighbors push their interests against Beijing?
A- The South China Sea is the most likely arena of confrontation. Some of China's neighbors, particularly Vietnam and the Philippines, are eager to pursue oil and gas interests in areas that Beijing considers Chinese territorial waters, and the risk is that they will miscalculate that a heightened U.S. security presence will give them backing to do so. They may encourage oil and gas exploration in disputed territory or take a more aggressive posture against Chinese fishing interests or other Chinese vessels in contested waters.
Q- Why will it be harder to predict China's response to provocation in 2012?
A- There will be a lot going on within China's borders in 2012. China is focused on a once-in-a-decade leadership transition and has not resolved internal debates over its role on the world stage. The leadership vacuum and jockeying for power during the transition means China's response to provocations will be unpredictable -- perhaps even aggressive. The 2008-2009 financial crisis and resulting souring of confidence in the Western economic model led some Chinese leaders to push for a more aggressive foreign policy, which Beijing adopted in Asia in 2010. Dai Bingguo, the Communist Party's highest ranking foreign-policy official, resisted this push with a reaffirmation that China wants peaceful development and is not interested in challenging U.S. primacy. But Dai is retiring from government this year, and his replacement is unlikely to wield comparable influence with China's increasingly diverse set of foreign-policy actors and interests -- even if he shares Dai's views.
Asia is fraught with volatility and uncertainty in 2012. Investors and corporations should pay attention-the risks of misperceptions and unforeseen tensions in Asia are on the rise.
Next up, the dramatic twists and turns along Egypt's road toward democracy.
Feng Li/Getty Images
By Willis Sparks
Western officials (and more than a few Western celebrities) have criticized China in recent years for its protection of Sudan's government. They've charged Omar al-Bashir's regime in Khartoum with support for ethnically motivated militia attacks on civilians in the country's Darfur region -- and China's government with complicity. Bashir, the world's only fugitive head of state, was indicted by the International Criminal Court in 2008 for Darfur-related crimes against humanity. Beijing uses its veto power to block international efforts to supply UN peacekeepers for Darfur, critics say, to protect its oil interests in the country.
It's ironic then that China's energy needs are now helping forestall a broader (and perhaps bloodier) confrontation in Sudan.
Last July, Sudan became two countries. The mostly Muslim North and mainly Christian South finalized a relatively amicable break-up as South Sudan became an internationally recognized independent state. But like most divorces, this one did not produce a clean break, because the two countries share custody of the country's oil wealth.
Before the separation, Sudan produced about 500,000 barrels of crude oil per day. South Sudan now sits atop 75 percent of that total, but the pipelines that transport the oil and the ports that move it to market lie in the North. Since July, the northern government in Khartoum has faced a series of political and economic crises, and its foreign reserves have dwindled to dangerously low levels. Bashir's government needs some way to draw more cash from the oil it has lost.
Not surprisingly, North and South have yet to agree on how to share oil revenue, and each side has used its leverage to pressure the other. An opening of negotiations offered little promise of progress: Khartoum demanded a transit fee of $36 per barrel. The southern government in Juba offered less than a dollar.
On Nov. 8, President Salva Kiir of South Sudan dramatically upped the stakes in the dispute by ordering the expulsion from the south of Sudapet, the North's national oil company and a financial lifeline for its government. Khartoum countered with an announcement that oil exports from South Sudan would be suspended.
China quickly jumped in.
This oil is especially important to the China National Petroleum Corporation (CNPC), which has equity production in Sudan of about 200,000 bpd, 15 percent of its total overseas output. Despite its growing involvement in oil exploration and production abroad, CNPC is still a newcomer to this game, with fewer options than its international peers.
And CNPC is important for China's government, because the company is a guarantor of China's energy security. Most of the crude that CNPC draws from Sudan is not shipped home to China but is sold on international markets. Yet Beijing has emphasized the importance of holding oil assets overseas, providing fuel that can be directed to China if events threaten a sharp drop in supply.
The country's thirst for energy -- and management of the political vulnerabilities it creates -- remain a top priority for Beijing. Sudan represents less than 5 percent of China's crude oil imports, but add an extended export shutdown in Sudan to the current range of worries and headaches across oil-producing North Africa and the Middle East, and you could have significant upward pressure on global oil prices at a time when the Chinese leadership is already worried over price inflation and the risk of unexpected foreign economic shocks.
This is an especially anxious time for Beijing's economic policymakers. Volatility in Europe and the slow recovery in the United States -- China's largest trading partners -- fuel fears of a sharper-than-expected slowdown inside China. It's also a delicate moment for the country's politics as a leadership transition begins in earnest in 2012. That's why China moved quickly to pressure the North to renounce its threatened blockade.
To save face, Khartoum announced it would allow the oil to pass but would seize about a quarter of the profits as compensation. Low-level violence will continue, and we can expect to see more of the increasingly common attacks on oil fields along the two countries' poorly demarcated border. There will be more turmoil in restive oil-producing regions in the North. But thanks to aggressive Chinese mediation, the oil continues to flow, and Chinese diplomats are now trying to broker a long-term deal on transit fees.
Don't expect China to dive more deeply into conflict resolution in other countries. On foreign policy, China's leadership is risk-averse even in the most confident of times, and the looming transition to a new president, premier, and party elite over the next two years will make officials even more cautious. Only when political and commercial interests clearly coincide, as they do in Sudan, will Beijing move quickly to intervene in the politics of other countries.
In this case, however, Chinese intervention helped avoid a dangerous foreign conflict -- at least so far -- even if Western critics are cynical about its motives.
Willis Sparks in an analyst in Eurasia Group's Global Macro practice.
ASHRAF SHAZLY/AFP/Getty Images
By Michal Meidan
The Senate bill that aims to punish China for holding down the value of its currency and that is now in the hands of the House will not trigger a trade war between China and the United States (as feverish speculation has suggested). That said, as both Beijing and Washington head toward political transitions in 2012, politicians will have to take tough stances on sensitive issues to please domestic audiences-while trying to keep bilateral relations stable. Maintaining its footing between these sometimes opposing demands will become increasingly challenging for Beijing as its campaign season revs up.
China's leaders aren't formally campaigning the way U.S. presidential candidates do, but jockeying for the country's top political positions is underway. Current leaders, as well as the younger crop they hope to promote, are therefore vulnerable to criticism from hardliners within the government, as well as from an increasingly nationalistic public. China's expanding economic clout, combined with a sense that American primacy has reached its end, is fuelling calls for more assertive responses to perceived provocations from Washington. In the run up to the Senate vote, Beijing therefore made every effort to lobby U.S. lawmakers to reject the bill. And once the bill had passed, Chinese politicians were compelled to express their displeasure vociferously. Government spokespeople slammed the bill as a protectionist move that could hinder the global economic recovery, while the state-run media denounced Washington's attempts to use the yuan as "a scapegoat for the U.S. politicians' incompetence."
Now that Beijing's rhetorical dues to its people are paid, though, it is unlikely to rock the boat further. By retaliating with currency devaluation or a trade war, Beijing could embolden lawmakers in Washington to push the bill forward. Instead, Beijing reckons that as things stand there's only a slim chance that the bill will become law. Even if the bill moves forward, China's leaders will likely wait for President Barack Obama to either water it down or veto it altogether. That is, Beijing will give the White House a chance to uphold the tacit bilateral agreement to keep cool.
Such conciliatory logic prevailed around the $5.9 billion arms sale to Taiwan that the United States announced last month. The Obama administration agreed to refurbish the F-16 jets it sold to Taiwan in 1992, but did not sell the island the latest model of the fighter plane, as some in both Washington and Taipei had hoped. China's response was low-key: Beijing called off a few military-to-military dialogues but did not sever ties (as it did after the previous announcement, in January 2010), despite strong calls at home to be more assertive. As long as Washington keeps its side of the bargain, Beijing can get away with such moderation.
But appeasing nationalistic voices while keeping bilateral ties on an even keel will be increasingly difficult for Beijing in the coming year, as contentious issues are likely to emerge. Presidential elections in Taipei in January could rattle nerves in both Beijing and Washington, as might flare-ups in the South China Sea. Particularly as the two countries grapple with an uncertain global economic outlook and try to coordinate their approach to the Middle East, any or all of these issues could make the campaign season acrimonious.
Michal Meidan is an analyst in Eurasia Group's Asia practice.
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By Anne Fruhauf
After much dillydallying, South Africa's failure this week to award the Dalai Lama a visa in time for his planned visit has elicited a chorus of opposition from respected human rights campaigners, led by Archbishop Desmond Tutu -- whose 80th birthday the Dalai Lama was hoping to celebrate in person. The government's vacillation was no surprise. Over the past decade, the nation renowned for its Nobel Peace Prize laureates and freedom fighters has repeatedly demonstrated that when it comes to big power politics it will abandon ideals in favor of realpolitik. This readiness to choose practicality over principles is likely to grow as the country tries to boost its economy, more and more on the back of emerging economies such as China.
South Africa's partners among the so-called BRICS offer much that the Old World increasingly seems to lack: deep financial pockets and promising models for economic growth and poverty eradication. South Africa is struggling on all these fronts. Just last week, therefore, President Kgalema Motlanthe called on his counterparts in Beijing to secure a $2.5 billion financing deal and memorandum of understanding on geological and mineral resources -- putting South Africa in no mood to rankle China. Awarding the Dalai Lama a visa would certainly have chilled the bilateral relationship. Beijing called off a summit with the EU in 2008 after French President Nicolas Sarkozy met with the Buddhist leader, and a recent research paper found that such a gathering could cost a country 8 percent to 16 percent of its exports to China.
That's not a hit that South Africa is willing to risk these days. President Jacob Zuma, facing serious pressure ahead of the African National Congress (ANC) party's leadership elections in December 2012, has pledged to create 5 million jobs by 2020 through the country's New Growth Path. But the economy is not playing ball. Instead, the recovery has taken a turn for the worse: Debt is rising, the budget is tight, and inward foreign direct investment plummeted roughly 70 percent between 2009 and 2010. Jobs data roundly contradict Zuma's promise that 2011 will be a year of job creation. Unemployment rose to 25.7 percent last quarter, and young people account for 72 percent of those without work -- a figure that politicians find particularly worrying given the Arab Spring to the north and the ANC Youth League's calls for "economic liberation" at home.
It's no shock, then, that South Africa is keen on diversifying its trade partners and soliciting investment from well-endowed allies. In 2009, China became South Africa's largest trading partner, and Chinese investment in the country, long lagging, is creeping upward as well. The Asian giant's footprint in South Africa's mining sector is also expanding, and the new memorandum could open the door for deeper involvement. (China might even wind up financing South Africa's undercapitalized state mining company.) In addition to cash, South Africa is looking for economic role models. The New Growth Path envisages a prominent role for state enterprises and development finance institutions in job creation -- an area that China and other emerging markets know a thing or two about.
The cosy relationship between South Africa and China could come at considerable long-term cost, both political and economic. The country needs more democracy, not more social control. And some worry that deepening economic ties will squeeze South Africa's troubled manufacturing sector; China's cheap imports and competitive labor pool could compound South Africa's deindustrialization trend. But for now, South Africa's leaders seem to calculate that the main downside to the deepening alliance is the occasional inconvenience of having to deny a great man a visa.
Anne Fruhauf is an analyst in Eurasia Group's Africa practice.
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By Nick Consonery
Beijing seems strangely unconcerned about the global market turmoil caused by fears of a second global recession. U.S. economic data over the past month has been disappointing, to say the least. The sharp sell-off in European markets at the beginning of the week hints that the continent's sovereign debt levels have become a persistent wound that rather than healing is developing a life-threatening infection. Brazil, meanwhile, unexpectedly cut interest rates to protect their domestic growth.
But rather than pulling out all the stops to prepare for another slowdown, the Chinese government is still taking steps to slow its own economy. The speed of yuan appreciation --which will make Chinese exports more expensive on global markets -- surprised markets over the past month. Beijing also hinted recently that it might take some steps to slow momentum in its domestic auto sector, even though it used subsidized auto sales to stimulate the economy in 2009. And Premier Wen Jiabao reiterated his government's commitment to inflation-fighting last week, meaning that liquidity will remain constrained in China, further restricting growth.
There are several theories to explain China's unexpected behavior. One is that the Chinese government is actually feeling a bit more confident about global growth than some of its peers in the developing world. Another is that Beijing has no choice but to continue tightening, given ongoing concerns that the economy is overheating and driving inflation. A third is that shifting politics in Beijing are facilitating economic reform.
The truth is that all these factors are in play.
From a global perspective, however, this is a big change. In 2008, when it faced the global financial crisis, Beijing pegged its currency to the dollar and rolled out a massive stimulus package. This response maintained rapid economic growth in China, kept Chinese citizens employed, put a floor under global commodity demand, and allowed many emerging market countries to benefit economically by satisfying Chinese demand.
But it did little to move the global economy onto more sustainable footing by achieving any kind of "rebalancing."
Contrast that history with today's realities. The policies implemented by China over the past few weeks are much more conducive to rebalancing. This marks a clear shift away from policies that are China-friendly and toward policies that are more system-friendly. China's leaders said as much in a white paper released on Sept. 7, in which they promised to "accelerate the shifting of the model of growth," which they predicted will "create great space for the growth of the world economy."
It is unclear how long this progress will go on. The yuan has weakened slightly in the past few days, and if there is any hint of a hard landing in China, Beijing's cautious leaders will surely stimulate the economy again to boost growth. But for now, Beijing's recent behavior is a positive for the longer-term sustainability of the international economic order. Let's hope it lasts.
Nick Consonery is an analyst in Eurasia Group's Asia practice.
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By Michal Meidan
Vice President Joe Biden is in China this week, reassuring the United States' main creditor that the country is still a good investment and stressing the importance of policy coordination between Washington and Beijing. As with Thursday's bungled exhibition game between the United States and Chinese basketball teams, though, the road ahead could be bumpy for both countries. Just weeks after political wrangling in Washington led Standard & Poor's to downgrade U.S. debt, China's state-run media has been critical of Washington, with some editorialists suggesting that Beijing should use its holdings of U.S. treasuries as leverage to press Washington to prevent arms sales to Taiwan. But for all the finger wagging and chest thumping coming out of Beijing, there is also deep concern: that growth in the United States is slipping and that, combined with the sprawling debt crisis in Europe, global demand for Chinese goods may be subsiding.
China's economic growth model is highly dependent on exports, and officials in Beijing are fretting over who they'll be able to get to buy their appliances, clothes, and toys if the world economy slumps. Their hope is that Chinese consumers, or the average Zhou (pronounced "Joe"), will. Indeed, the shaky global economic outlook lends ballast to China's ambitious Five Year Plan -- a blueprint for the country's economy that aims to lean more heavily on domestic consumption. But in our in-depth analysis of the plan, Eurasia Group's China team argues that even though Beijing will work hard to engineer such a shift, the country will ultimately fall short of its goals.
Beijing can and will mandate periodic wage hikes and spend considerably more on fixing the country's frayed social safety net. This will help households save less and spend more. The rapid urbanization push, which will lead 300 million or so farmers (roughly the population of the United States) into China's cities over the coming decade, also will spur consumption. But this won't be enough. China's inherently conservative leaders, now jockeying for position ahead of the 2012 political transition, lack the stomach to push through bold reforms. They'll be reluctant to tackle powerful provincial leaders and large state-owned firms, both of which will resist paying additional dividends to support households. And financial sector reform, a precondition for developing a competitive private sector, as well as a key source of job creation, will be limited by the government's desire to keep banks under its wing as a means of directing industrial policy.
The bottom line is that in 2015 Chinese households will only be slightly richer and the Chinese economy will rely only a little less on external demand. U.S. investment and the average Joe's appetite for Chinese-made goods will therefore still be a significant driver of China's economic growth. And posturing aside, close coordination with the United States will remain as important as ever.
Michal Meidan is an analyst in Eurasia Group's Asia practice.
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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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By Michal Meidan
It's all about getting rich in China; everyone's looking to make money. Foreign firms hope to cut costs by outsourcing to China, companies are targeting the up and coming consumer class, and for many Chinese, working overtime or taking a second job is an accepted part of the pursuit of wealth. That drive for wealth is fueling improving living standards and a remarkable economic boom, but it does have a dark side.
Sometimes, the pursuit of wealth crosses into territory that can be on the verge of illegality, distasteful, unwise, or just surreal. Allegedly selling your organs for iPads is unwise and perhaps distasteful. Forcing Chinese prisoners to search for gold in multiplayer online games in a type of virtual 21st century chain gang is both surreal and a blatant abuse of power.
Gold farming -- earning virtual credits in online games and selling them to other (mostly Western) gamers for cash, which the prisoners are allegedly doing -- is also a second occupation for many of China's young workers. And in a way, it is no different than any other outsourcing practice to China, from toy production or textile manufacture. Western consumers pay, Chinese companies provide. The wages, the margins, the worker housing, the long shifts, and endless workweeks, these are all standard practice. It becomes very clearly reprehensible when power is abused for personal gain, and rules are bent or just plain ignored.
Yet this latest instance of prisoner abuse is just another example in a long list of prisoner-related scandals and charges: organ harvesting and sales from executed prisoners; exported prison labor; and allegations that Whole Foods Market's Chinese vegetable suppliers use prison labor toiling in polluted fields.
Strong enough uproars from domestic or international public opinion can at times prompt Beijing to introduce regulations to crack down on illegal, distasteful or abusive practices. But as the old Chinese saying goes, "the mountains are high and the emperor is far away." For some time to come, Beijing is likely to remain one step behind its innovative citizens as they go for gold.
Michal Meidan is an analyst with 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.