SINOGRAPH Arab unrest keeps China
on its toes By Francesco Sisci
BEIJING - Last Saturday, March 26,
anti-government demonstrations engulfed several
cities in Syria, an old Middle Eastern
dictatorship supporting the Islamic
fundamentalists who periodically attack Israel
from southern Lebanon.
The Syrian
president, 45-year-old trained ophthalmologist
Bashar al-Assad, who inherited the position from
his late father Hafez al-Assad, allegedly ordered
troops to open fire against protesters.
During the weekend, international media
reported dozens of deaths, and a de facto case was
building for some form of regime change or for
Western intervention in support of the
anti-government protesters.
Just a week
earlier, a coalition of United States, French, British
and Italian forces intervened
in Libya against Muammar Gaddafi in support of
rebels who had been losing their war. If, in a few
days, the Syrian protesters are also losing their
fight against Assad, would the US just stand by
and coldly follow the crackdown? Why should the
West put up with a crackdown in hostile Syria
while it could not stand it in Egypt (an ally
whose army it pressured to turn against the local
dictator) or in Libya (a non-allied but
non-hostile country where it has bombed the local
dictator)?
Logic and precedent would
demand that either the Syrian generals get rid of
Assad within a few days or weeks, or a new front
in the Middle East will arise, maybe just as soon
as Gaddafi is taken out, in one way or another,
from Libya. This option would be very risky.
Syria's troubles have appeared before Gaddafi's
elimination, and divided political and strategic
attention could complicate developments in Libya.
Many things could then go wrong; and at worst the
whole Middle East could become a total quagmire.
However, the present Western general
strategy, shaped by a great old man of the
mountain, the thousands of coincidences of
history, or by a mix of the two, hopes to skirt
quicksands. It aims to establish a new order in
the region, something that escaped George W Bush
after the war in Iraq.
The apparent goal
is to topple the dictatorships by pressuring the
local elite to drop their master when the country
is obedient to US wishes (as in Tunisia or Egypt).
This has been taking place without much
flag-waving of either the Stars and Stripes or
green radical Islamic banners.
Change so
far hasn't touched tricky Saudi Arabia, or
immediate neighbors that are all key to the
world's oil supply and prices. So when Saudi
troops helped crack down on rebels in Bahrain, a
country with Sunni princes and a Shi'ite
population, the US didn't intervene. The protests
were considered as inspired by Iran - ruled by
fundamentalist Shi'ite mullahs - and not by
popular democratic ambitions.
While the
United States is supporting revolt in countries
whose leaders are either unfriendly or friendly,
that backing comes with the condition that the
protests do not represent an advancement of the
ambitions of America's top enemy in the region. If
things go well for this Western-sponsored wave of
"Jasmine" revolutions, Iran could be boxed in,
under siege. Then, possibly, the rule of the
mullahs could be challenged by new democratic
demonstrations within a few months, when global
inflation and hikes in grain prices could export
bread riots to Tehran.
This trend looks
like a tsunami - too big to oppose, one has just
to ride it on, all the time aware that no one
knows if after the inundation recedes there will
be sunshine or rain. Surely, whatever the weather
brings, there will be immense destruction,
material and institutional, that will take years
to repair.
This could be a disaster for a
few years, but perhaps in the medium-long term it
could also be a blessing in disguise, as many of
those oil-rich countries could pay the West
handsomely for reconstruction, thus helping to
drag Europe and America out of recession.
All this is the rosy future that, in the
best-case scenario, will take years to kick in;
meanwhile, many things can go wrong.
In
the next few months (and possibly few years) the
scenery is certainly different, with important
immediate economic consequences in the world where
the situation is far less than rosy. Riots in the
region mean higher oil prices, which means
inflation across the board.
This
inflationary pressure piles up on the massive
crisis in Japan as a result of the triple whammy
of an earthquake, a tsunami and a nuclear leakage.
Japan, a massive global exporter and investor in
Asia, is drawing capital back home to finance its
own reconstruction. Ridden with a deficit that is
more than 200% of its gross domestic product,
Japan will have to inflate its way out of the
present crisis, while cutting exports.
The
impact of these global inflationary pressures is
exacerbated by the US Federal Reserve's policy of
quantitative easing as a salve for American pains
after the 2008 financial crisis.
Inflation
brought on by the Fed printing money also means
greater international competition in the sale of
government bonds. This is crucially important for
the countries of the eurozone, which are united by
a single currency but divided by sharply different
yields on national bonds. Some strong countries
sell their bonds for low yields (say Germany),
others struggle to pay high yields that put
already weak economies (say Greece, Ireland,
Portugal, Spain and Italy) under even greater
strain.
The European Union (EU) has
stepped up the push to establish mechanisms
protecting the euro from possible defaults by its
members. But these mechanisms are not automatic
and the weak country has to be asked, in return,
to cede sovereignty over a number of local fiscal
policies. Even then, the strain for the stronger
economies could be too heavy.
Yields on
all maturities of Portuguese bonds rose to
euro-era highs again last Friday, with investors
worrying about the country's chances of meeting
9.5 billion euro (US$13.4 billion) in debt
payments due between April and June. Any bailout
for Portugal would total as much as 70 billion
euro.
This made billionaire investor
Warren Buffet argue last week that "enough of a
strain could cause it to fall apart ... I know
some people think that it is unthinkable, I don't
think that it is unthinkable.''
The crisis
in Portugal, and possibly in Spain, was certainly
not started or caused by troubles in Tunis or
Tripoli, but issues there or in Japan could
accelerate a euro crisis. And concurrently, a euro
crisis could make the French or Italian war effort
in Libya, and possibly in Syria, more expensive.
Furthermore, there is China, hit both by
the Jasmine revolution and global inflation. Here,
inflation was already quite high at the beginning
of the year, with the index of food prices showing
10% growth, resulting from the success of the
measures for economic expansion that pulled China
out of the global financial crisis.
Inflation, however, is unlikely to trigger
massive unrest of the kind we saw in Egypt. Most
of China's population is still made up of
grain-producing peasants, who are likely to
benefit from grain price hikes. The rich urban
population doesn't even notice food prices; it's
the low-income urban population that is suffering.
As they have recently moved to a richer diet of
meat, they could have to scale back to meals of
rice and vegetables, an unpleasant step made worse
for individuals tightening their belts at the same
time as seeing their wealthily compatriots put
more luxury cars on the road.
This and
calls for greater democracy through social
networking Internet sites, which are growing in
popularity among young urban intellectuals, could
stir up some trouble for Beijing. In anticipation
of rising angst, Beijing has stepped up blanket
security, something that, in turn, causes
irritation for an even greater number of people.
In the next few months, these factors are
unlikely to cause major disturbances in China, but
will keep the government on its toes.
So,
the next couple of moves in the Middle East have
become quite crucial in this global domino
stretching from Tokyo to Tunis and Lisbon. Every
day that Gaddafi holds out, it raises the price to
be paid by the Western coalition, the "tax on the
euro". And thus he implicitly helps his Syrian
fellow Assad. Clever Western negotiators should be
at work to ease a political solution in both
countries that could lower the myriad costs of the
ongoing confrontation.
Europe and America
have a clear though risky goal in this: fast
regime change. If this happens, they win,
otherwise they lose. China is in the comfortable
position of gauging the results and then acting
(see Lessons
from Tahrir to Tiananmen Asia Times Online,
February 11).
However, the Japanese
nuclear disaster, the Western action against
Gaddafi and unrest in Syria are putting further
pressure on the economy. Food and oil inflation
could be stronger and longer-lasting than earlier
expected. Moreover, the two possibilities are not
the triumph of Gaddafi or French victory; the real
possibility is either a prolonged fight and vast
destruction, or a quick victory of the Western
forces. Like in Iraq or Afghanistan, anti-US
forces can hope only to make America's victory
more costly.
In the long run then, China
could suffer with or without fast regime changes.
Prolonged fights could push inflation up and make
China suffer; fast regime change would decrease
the economic pain but increase the pressure for
political reforms in China.
What could
China want: prolonged fighting in Libya and Syria
resulting in paying a higher economic price (with
potential social drawbacks in the cities) while
largely preserving the political system? Or would
it want fast Western victories that would cut the
economic tab but mean Beijing would pay the price
of political reforms (with potential grievances
from the powerful conservatives)?
Beijing
has time on its side, in that domestic decisions
are not pressing and will depend on developments
elsewhere. But time is running faster than was
anticipated just a few days ago, and developments
are far more wide-ranging.
Moreover, there
are consequences for the global economy, in the
midst of an attempted recovery. Like solving a
difficult algebraic equation, the number of
unknown variables is growing.
These
include a lack of certainty over: when and how the
Japanese nuclear leakage will be brought under
control; what the end damage will be in the part
of the global and regional supply chain that is
centered on Japan; the impact on medium-term oil
prices of the global rethinking of nuclear power
plants; the impact on global inflation of Japanese
efforts to finance reconstruction on top of the
country's huge public debt; the impact on oil
prices and inflation of the ongoing turmoil in the
Middle East; and what impact European
participation in the war in Libya will have on the
European bond crisis?
With so many
variables, it's easy to think that something in
the present equation could go wrong and the
situation in the Middle East only worsens. Then,
the consequences for the global economy could be
even greater.
Francesco Sisci is
a columnist for the Italian daily Il Sole 24 Ore
and can be reached at fsisci@gmail.com
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