Now you see it and now you don’t. China’s recent display of a stealth fighter has in many ways served its purpose. It is still a long way from being operational and posing a treat to the only other competitor. But it has provoked India and the US to respond with counter moves of their own.India has reacted very strongly to China’s issue of a stapled visas to people of Arunachal Pradesh (or South Tibet) as the Chinese would like to call it and set in motion a diplomatic offensive on China. The Indian Army Chief has denied indian media reports that Chinese Troops have intruded across the Sino-India Border, but accepts that both Armies have engaged in Infrastructure development at the borders. I am not been paranoid here, but one needs to ask why India took this moment to announce a major revamp of its Army. It has embarked on a $100 Bn drive to acquire capabilties. A new strategic command has been set up and a mountain strike corps aimed at China has been announced.The Indian Navy ties up a pact with Vietnam to modernise Vietnam’s fleet.The US in its big brother role has said it needs to be in the pacific to counter China agressiveness and technological advances.Hillary Clinton has also joined the fray with the usual cry of asking China to revalue the RmB, perhaps thinking that this would decrease trade imbalances as well as reduce China’s soveriegn reserves.It also moves to continue the encirclement policy by engaging with Japan, South Korea and Taiwan.What about our part of the world?, Opinions is as usual divided on anything chinese. The UK has welcomed Chinese Pandas and investment into the isles but is furious accoding to the MEP, Daniel Hannan on the EU’s decision to lift the arms embargo on China. Portugal and Spain are happy that the Chinese are buying its debt, but some have concerns of the effect on the relationship between the Euro and a Yuan.What these actions lead, to apart from reaffirming the economic might of China and India,is a dangerous shift to a strongly polarised world where the struggle for regional dominance rides over the more pressing needs of the 2.4Bn people resident in these countries. Where economic growth has created vast opportunties that are squandered on geopolitical games in either Gwadar or Chabhar.Do we need more MAD weapons to shore up national pride or do we take 50% of the people out of poverty? Do we provide more access to health care and education? Or do blow it up on a stealth fighter that none sees anyway or on supporting a huge army which serves no purpose in times of peace. History has a bad way of reminding us of the fate of dominating powers and perhaps these irresponsible emerging states would look back once and think of a better tomorrow
Tag: The Globestrategy blog
Articles.posts. opinions from the GS team.
The Emergence of a Powerful State within a Neo-liberal conversation
Julian Assange is now free. The whole episode of imprisoning him on rape charges has turned him into a sort of modern day anti- establishment hero. Many have seen it as the machinations of powerful state actors willing to bend rules to nail Assange down, no matter how guilty he is of the actual deed. This then brings us to debate of the morality behind such actions by a nation that has prided itself on being so full of democratic ideals that it dares to lecture to other states like China and the Middle East. What is so democratic about stifling the freedom of a man who gave us a glimpse into the workings of the diplomatic corps. Most governments have denied that the wiki leak cables have any ounce of truth in them. If it was the truth, Governments should have left these rumours take its natural course and die on its own. Do we not witness many examples of stories particularly those involved with celebrities go down this route and die out? To have gone after Julian Assange in this fashion has added more mystique to his persona and created more distrust of the way democratic and neo-liberalistic govts manage the freedom of the Individual. We are no different from any of the states run by Tinpot dictators. Even India, hailed as a bastion of democracy has been guilty of state supported suppression of personal freedom (the Emergency Era of Indira Gandhi). What then makes democratic states different from other systems of Government if its citizens do not have personal choices? I think what we are seeing is a mixture of several forces trying to turn a simple act of leaking information into an media circus. The first force is that of Individuals trying to have their 15minutes of fame without any regard to the effect their actions will have on an ordered global political system. The second force is that of State actors trying to exceed their moral brief in trying to suppress the first force. What both forces forget is that their fight is being played out in a fast moving interconnected world where we – the people are watching and forming perceptions, some of which verge on extremely dangerous responses like cyber attacks and more conventional forms of organised disruptions. Do we need our world to be turned upside down by these careless acts of stupidity by both states and individuals? Do we need a nanny state to dictate every personal action?
The Obama Encirclement of China
Has anyone seen any geopolitical connections with the US president’s visit and China-US relations?.Obama starts with India,and moves on to Indonesia, South Korea and Japan. The main reasons are economic if the Guardian is to be believed. However, if you were to look at the countries he visits, Indonesia has a GDP growth rate of 6.2%, India has 8.4%, South Korea has 6.1% and Japan has 2.8% growth rates respectively. the importance of these markets to the US economy, only Japan and South Korea matter in the top 10 trading nations.China and Canada are the top nations. One can argue here that Obama is seeking to diversify trade perhaps by offering the world’s third largest economy sops and also seeking to engage Indonesia as an emerging market.What if you were to see beyond this to China-US issues and its trade spats with the US including the currency wars, dollar denominated bonds, huge chunks of Federal reserve gilts and try to correlate this with the issues China has had with Japan and South Korea over territorial incursions as well as its constant rivalry with India? Do you see an Obama administration wishing to flex a China containment strategy by cozing up to China rivals? The enemy of an enemy is a friend, eh?
On why Dubai wants a piece of India’s real estate
The $335M Smart city project in Kerala State has been in the news in recent times. Both partners- The Governments of the emirate of Dubai and the State of Kerala have engaged in mudslinging allegations . One of the major issues has been the demand from Dubai that that Kerala should hand over 12% of the 246 acre project as freehold land. Dubai claims that this would later be sold to investors once the project was completed, yielding a better return for them. Kerala has refused to release the land as freehold and wants Dubai to have it on a long lease basis.
In a state of India where high literacy has created more awareness of global issues and where public engagement with government policies is the norm, selling off Kerala’s sovereign land to another country will not go down easily. To make matters worse, the state is ruled by the communist government, which once initiated one of the most successful land reforms policy. Many of their previous policies have stirred controversy even though history would later prove the soundness of some of the policies. Of course, the man at the top of the government of Kerala, a communist of the old school does exhibit some idiosyncrasies like calling the CEO of SmartCity , a’ drunk’ Arab and he also suffers from a serious case of the foot-in- the mouth syndrome at press conferences.But let us leave that aside and ask why Dubai still persists in wanting the freehold land? 23 board meetings later, the issue still remains and now the emirate wants to go for legal action or arbitration. Why force a state to part with its land? Will Dubai allow the Indian government to have free hold land in Dubai? Why not go down the time honoured route of long term lease? Examples abound of the success of long term lease in protecting investments. Hong Kong is one!.
Several streams of strategic intent can be argued on why Dubai wants the land.
A. To diversify sources of its GDP and wealth creation by moving into a growing and powerful economy.Dubai GDP is Dh68.397 million with projected growth rate of 0.3% growth and strongly dependent on services.
B. The Traditional High ROI model of selling excess land once the project is successful.
C. Locking by investment into one of the fast growing cities in the India, KOCHI with the new found importance of its sea port and the new transshipment container port. Or is it the naval assets and the potential of India only mega ship building facilities.
D. Creating a media circus that would mask an EXIT strategy for the project. The recent sovereign debt rescheduling by the Emirate & over $18 billion sovereign and quasi-sovereign debt obligations in 2011 would add support for this.
E. A delaying tactic to wait for the congress party to come back to power in June and approve the sale of land. The party has already supported the demand.Many commentators have suggested this would then open up a huge stream of corruption for other vested interests like Indian Business men in the UAE and of course for the Congress Party, which in recent times has made a mockery of the rule of law with corrupt ministers and officials.
Whatever is the outcome of the project, it has once again proved that doing Business with India still defies normality, even as we strive to be counted amongst the World’s powerful states.
The Economic implications of a Royal wedding
Channel 4 reports that the either the government or Her majesty would foot the bill of Prince William’s wedding in either in 2011. Opinions are divided on the cost of the wedding. The guardian reports that the 1981 wedding including security could have cost around £30m which could be upto £100m in today’s terms. If the Queen is denied any increase in the civil list, her personal fortune would be hit. How much of that wealth is there, is itself ambigious, as the Queen holds much of this wealth in trust for the nation. The Times Rich estimates her fortune is £290m and a £100m deficit might be too much to stomach for Her Majesty? The government will have a lot of wrangling to do before parliament appproves this additional expenditure in times of uncertainity.Will this provide value for who ever foots the bill? I think it will.Ofcourse as this is my off the cuff assessment, it may be slightly off,the exact estimates. Prince william is still by far the most popular Royal with a credible public persona and his wedding will be a media frenzy that could draw the tourists to the UK. Government Statistics indicate that the UK earned over £4.3Bn last year. A mere 2.33% hike in tourist arrivals would pay for the wedding. What about the other parts of the economy? Souvenirs and other copies of royalMemorabilia would produce an economic boost -but only if it was manufactured in the UK and not in china or other lower production states! What about the value of its morale boost to a populace battered down by cuts and cuts? Remember the Churchill era and the value of good PR in times of crises. The wedding might do that now and spur all of us to create more value than we spend on it.
Will the Egyptian sphinx smile or cry?
The Egyptian street protests are now in their 7th day and there seems to be no logical end to it. With a protest of this magnitude, fuelled by pent up frustration, media coverage and unprecented coordination of people across cities, you would expected either a total suppression by the regime or a victory for the people. Instead, you see Mubarak ordering the Police to take charge of the situation without firing live ammunition.( some media reports have indicated that live rounds were indeed used). The police fail to take the streets back and then the army is deployed on the same rules. Witness here the spectacle of soldiers chatting with people almost as if they were on a day’s picnic. Why, one would ask, is there no move on the part of any of the belligerents to end this? As always, the answer has to be found in within a web, we call, foreign affairs. Big Brother USA has a vested interest in maintaining a status quo in Egypt, partly for strategic reasons (The Suez falling into wrong hands???) as well as in ensuring Israel’s military balance in the region remains unchallenged. Another could be a need to prop up monarchies/autocracies across a region which produces some much of world oil and in turn control them by manipulating regional rivalries. Egypt could be the breath that brings down the whole house of cards.The US has not publicly denounced Mubarak nor has it supported it. Sending a former ambassador, Frank G Wisner, as a private citizen is also a non- committal stance. Mubarak has tried to play his own set of moves, reshuffling a cabinet, creating a line of sucession outside the family, and raising the spectre of anarchy if he were to fall. All of which leads us to the third part of the web. The Egytian Army has been the backbone on which a post- King Farouk era was forged. It has been well regarded by the common man as a defender of its sovereignity.(How much of that is true or a myth depends on your interpretation of the Yom Kippur War). the army is also the fountain of power from which the pharoahs, ancient and contemporary derive their legitimacy to rule, unlike the monarchies which obtain the right to rule from divine grace. The army by its actions wants to present a Iron fist clad in a velvet glove as they walk a line between the people and Mubarak. Some reports have even gone to suggest that Mubarak is now being told what to do by the army. But why does the Army want to retain power? An entity that recieves over 1% of the country’s GDP as foreign aid from the US would not want to rock the boat, even if it needs to sacrifice some old pharaohs. Nor does it want to be subject to a greater power than its own after almost 50years of indirect rule.What do the protesters want? Nothing more than Mubarak quitting. No future plans are being discussed. The opposition groups are in opposition to each other and cannot unite. All one hears is the cacophony of ‘Go Mubarak!!!. Perhaps, the Army might graciously ask Mubarak to leave and with an estimated 20billion in , the Sphinx might attempt a wry smile as he savours life in the midst of plenty. For the people with their immediate need met, they might look forward to another sphinx ruling for 30 more years.
National Champions and the Rise of protectionism from the East
Jaguar Land Rover(JLR) is reported to need around $400mn for its expansion plans in 2013 and it turns once again to the city state of Singapore. TML holdings Pte, a wholly owned subsidiary of TATA motors has issued S$350Mn worth of notes at 4,25%. In addition, another TATA subsidiary, Abja Investment Co Pte, has raised S$300Mn at 4.95% there. Plans are on the anvil for a potential fund roadshow that will generate $ 1Bn for JLR.
What is about Singapore and the TATAs? The story begins in in 1972, when JRD Tata was asked by Lee Kuan Yew to set up a precision engineering unit and a training institute. In time, the Tatas would sit on the board of Temasek,the Singapore Economic Development Board and the board of the Monetary Authority of Singapore. Perhaps a common belief in mercantilism and the ‘state’ control of strategic industries was the key driver of the partnership. Tata would go one to invest in the state with the Indian government blessing.
The closeness of the TATAs to Singapore would prove beneficial in 2008 when Tata was bidding for JLR and this is where our story of eastern protectionism begins.
In February 2008, the Indian Army made a move towards seeking a replacement for the aging Czech owned TATRA platform for its Light Specialist Vehicle (LSV). TATA motors was pitted against Ford owned Land rover and it seemed that Land rover would be better placed to win the contract.The land rover offer was the multi-platform Defender which included a weapon platform for machine guns, a dedicated communications vehicle and optional ambulance operations. Although the TATAs were partners of the Indian Army from 1958 and a ‘national interest’ champion, the four military variants of the Defender—the backbone of the British Armed Forces was better placed to win the 55,000 vehicle deal.
But Land Rover was foreign owned . The Indian Army and by extension, t
he government wanted to reduce its dependence on imports, have
indigenous produced combat vehicles and own intellectual property rights for the source codes for any Vehicles, to prevent conflict of interest during any an insurgency.Automobile firms in private sector like the TATAs and Mahindras would now play a bigger role in the years ahead to spearhead the acquisition of assets,
The opportunity to have an Indian owned supplier to the Indian Army would come later in 2008.
As Ford began seeking suitors for Jaguar and Landrover, the TATAs would enter the race along with Mahindra. The business press had a field day reporting on the upstart from India trying to take over iconic British Brands.
Max Warburton, a leading global automotive analyst is reported to have termed it a ‘ romantic act’ on the part of an Anglophile. ”No one would make profits from Jaguar”. Ford knew that selling Jaguar would be difficult and insisted that both brands would be sold together.
TATA motors would go on to buy JLR using Singapore as the base for funds syndicated by a consortium led by the State Bank of India and using a SPV set up there. Funds would come in from Royal Bank of Scotland, the Governments of India and Singapore, HSBC, CITIBANK, other Indian State owned financial houses and of course , Singapore’s sovereign fund, TEMASEK.
Why would the TATAs buy a loss making car brand in the recession of 2008? There was no operational synergy with TATA motors. Sentiments aside, it made no sense unless the real target was Land Rover and the Indian Army’s need.
We now know that this was the reason. The Indian Army last week is reported to have completed field trials of the Defender and Discovery platforms. The company has released a media statement that it expects to get over two-thirds of the $10bn business. In other words, around 42,000 new land rovers or almost 30% of current production targets will be produced for one key customer.
Economic nationalism, supported by government institutions is the new trade objective. Move over, the US and the traditional concept of imperialistic entry modes.
The East has perfected the art of economic warfare, if one is to look critically at the many Chinese and Indian mega takeovers of strategic assets.
In the scheme of things, the Indians have been laughing all the way to the bank. Buying a strategic national interest resource for $2.3Bn using low cost global funds,then turning the car business into profits on the basis of demand from emerging markets, and now owning a game changing capability.
A example of the rise of new protectionism from the East!
The Global Business of keeping America solvent
Will Rogers, the american satirist once remarked ‘ All I know is just what I read in the papers, and that’s an alibi for my ignorance’
It sums up the media frenzy today on the US government going broke!
Do you really think the world’s largest economy will do that ? How hard is it for congress to raise the debt ceiling by a few more trillions when US debt ceiling has no limits? How gut wrenching is this decision for its lawmakers? Remember we went through all of this as congress raised the ceiling 10 times from 2001 with no moral qualms about the level of debt. After does it matter, if you owe 17 or 20 trillions if you are reconciled to never bothering to pay this debt in the foreseeable future?
The soothsayers are out already debating the US sovereign default in almost of of the world’s media. But will America default?
Historically, barring 1979, when a technical glitch caused the Treasury to default on $120 million of notes, there has been no defaults of US sovereign debt. After all how can you default when you own and manage the global economy’s currency of choice (US$) and your debts are also denominated in your own currency?. The worst case scenario would be printing more US$ bills to repay debts as Alan Greenspan once claimed.
If this is not the frenzy is all about, let us look at a few reasons:
The first reason is political. The BBC’s Linda Yueh has touched on the adverse effects of tightening US outward FDI on the emerging economies of Indonesia, South Africa, Brazil, Turkey and India. She calls the ‘Fragile five’. Linda argues that ‘these states have the most to lose when the US Govt restricts capital, since all of them run current account deficits and rely on capital inflow to service their repayments’ You can read the full article by Linda Yueh here.
These states have growing economies, are emerging out of their cocoons and most importantly are ‘gateways’ to geopolitical focus regions. All of these five states are facing elections in 2014. Restricting capital could strangle these economies even for a few hours and this act coupled with political instability in the states could lead to even worse effects.
The second reason is fairly straight forward. The shadow financial institutions of the global economy stand to gain the most if there is a period of uncertainty. Gold has already peaked in many regions and is unstable as we wait. Oil prices are also on the roller coaster as we wait for the Fed and Syria to make up their minds on which is the better evil. Chemical warfare or more debt.
Amid all of this chaos, the financial world makes its money and when the debt ceiling is raised, rests till another day
I could be wrong of course and we could see the largest economy default.
To GDP or not to GDP
We have been bombarded with media reports of the UK’s recent increase in GDP as a sign of the new economic prosperity. Chanting this magic mantra is the new age therapy for most politicians. So what is ‘GDP’ and how relevant is this to the real growth of a state.
Gross domestic product or GDP is a measure of a country’s economic activity, namely of all the services and goods produced in a year according to the BBC. Bloomberg offers another way of looking at GDP as a process that ‘offers a value of marketed goods and services produced in a country in a given time frame’
Robert Kennedy once said that GDP ‘measures everything except what makes life worthwhile’. Ironically this is so true of the way the term GDP has been repeatedly abused.
My mapping below gives some of the key aspects of GDP which you can read further (whilst on coffee or something more sinister and deadly fueled) on a trawl of the internet.
Looking at this map, we can see that the news that the UK will spend £2.5bn on buying new F-35 fighters will certainly add to the GDP whilst ignoring the fact that 20000 children in the UK spent Christmas without presents and ‘real’ food (read the story here http://bit.ly/1m4kTYm ). This dire fact will not be picked by the GDP chanters. It will also hide the fact that the UK trade indicators presented a deficit of £7.7 billion on goods while we recorded a surplus of £6.7 billion on services, a vast chunk of it from the financial sector.
While the media gloats over the rise in GDP, let us reflect on what is driving GDP rise in the UK.The new spurt is the UK economy is led by rising house prices, artificial buoyance in the market and optimism created by the various help to buy schemes. One of the direst projections comes from the telegraph blog by Jeremy Warner (read it here http://bit.ly/1ogWDRq) that seems to indicate we have lost the capacity to grow the UK economy any bigger. He also warns business investment in the UK has been stagnating over 15 years and this cannot be a source of new GDP. The office of national statistics also confirms this by adding that the value of both UK exports and imports has remained flat since mid-2011 (read it here http://bit.ly/1fXu59z ) .
Quoting Hamlet, I leave you to decide on whether ‘tis nobler in the mind to suffer’ further abuses of the GDP measure or ‘to take arms against a sea of troubles’ caused by the misuse of GDP.
Putin,the EU and the return of the Black Sea spring
Another one bites the dust! Viktor Yanukovych of the Ukraine flees to his stronghold in the eastern part of the country or perhaps has left to Russia as I write this. The people’s revolution has momentarily triumphed and we wait for the trumpets to proclaim a new constitution. The political prisoners are out too including a former PM.
Unlike other dictators , Viktor Yanukovych was an elected leader. But one who may paid for bending backwards to appease big brother Russia whist the people it seems now favoured a more southern approach to the EU zone much like Moldova.
And pray, what are the key issues that keep Ukrainian people outdoors in bad weather and see him out of the presidential palace? It seems our good friend of Russia wants to go one step and ‘manage democracy’ like Putin. He has already jailed opposition politicians like Yulia Tymoshenko, muzzled free press and introduced censorship.
But was Yanukovych that so bad that the EU and the world should take notice? After all, the people have had no love for Tymoshenko too if recent media reports are true. We also need to remember,Yanukovych almost signed a deal with the EU before swinging completely over to the Russians. Why do we care for another wannabe tinpot dictator when we accept and do business with the Mugabes, the Kims, the Musevenis and the Burmese Generals?
The answer, lies in Ukraine’s geostrategic value to the EU and the grand Russian dream of Mr. Putin.
Ukraine is Russia’s access to the black sea through its Black Sea fleet and possibly to Mediterranean if needed. Currently, with NATO’s Turkey controlling the Bosphorus end of this sea route, the fall of Ukraine is vital to the EU. Ukraine also controls Russia’s gas terminals to Europe. Yanukovych had already supported Russia interests by allowing Russia to lease its Sevastopol bases till 2042. He has also agreed to increase the size of the Russian fleet.
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On the other hand, Yulia Tymoshenko wants the Russian influence to diminish and for the fleet to leave, Perhaps, that is why, Mr Putin might have suggested that Yanukovych ‘manage’ her. Russia badly needs Ukraine’s ports for both export of goods and oil resources.
The EU through its European Neighbourhood Policy would like to see the Ukraine in its embrace, partly due allowing it ‘values of democracy, rule of law and respect of human rights‘. It will also benefit trade worth over $230 billion in the region. The EU through its eastern partnership strategy with Armenia, Azerbaijan, Georgia, Moldova and BelarusIt has stepped in with an economic deal and lifeline that may counteract the $15 billion from Russia that Ukraine was dependent on.
Historically, it may have a point as some parts of the country were created from Poland and Austria by the USSR. But the size of the economy in Ukraine with its subsidized gas and state control of key industries may not be attractive to the EU as new market economy.
And what is the business angle?
Sea Trade and politics
The total seaborne trade is the region is minimal about 2.5% of global trade. But Russia and the Ukraine alone handle over 75% of this trade. The Ukraine is clearly the largest country with its ports at Odessa, Mariupol, Illichivsk, Mykolaiv, Izmail. Russia on the other hand depends mostly on Novorosiysk for access to the black sea.
The shift to the EU can provide Ukraine with more access to modernizing its industries as well as preferential tariffs to the EU which is potentially a larger market than Russian and its Eurasian allies.The EU is Ukraine’s second largest trading partner.EU-Ukraine trade in goods reached €36.6 billion in 2011. The full report is here
The game
The EU wants to limit Russian influence in the EU by making a stand in Ukraine and also to reassure its allies in Moldova and Georgia that it can still roar. On the other hand, we see Putin’s a grand dream of Mother Russia exerting influence on all satellite regions and the creation of a EURASIA union. Putin would also like to limit the EU’s ingress into his territory too.
At the end of this game, who ever gets Ukraine as prize will find it uneasy as a conquest in both economic and geostrategic terms.