Night Watch
1/11/2013
Japan-China: Bloomberg
has published an excellent report that describes the economic
consequences of Japan's dispute with China over ownership of the Senkaku
Islands. No other news outlet has published a comparably insightful and
detailed account.
The first point the journalists made is that
trade relations between China and Japan multiply the costs of a
territorial dispute. Japan's trade with China is valued at more than
$300 billion per year, which is potentially at risk.
A Chinese boycott of Japanese imports would
hurt China but might already have resulted in a reduction of GDP,
according to Bloomberg citing JPMorgan Chase, because of reduced Chinese
purchases of Japanese goods.
Ripple effects in China from boycotts of
Japanese manufactures put at risk the jobs of millions of Chinese who
work in Japanese industries in China. Japanese auto sales declined. Air
travel cancellations increased in both countries. One Japanese
department store retailer closed 60 of 169 stores because of
anti-Japanese vandalism and threats.
Comment: The key point is that global economic
integration magnifies the consequences of international disputes.
Interdependency means both sides seriously suffer economically, although
security incidents result in no casualties. Japan might have sustained a
.5 per cent decline in GDP in the last quarter of 2012, essentially
because of Chinese hostile, nationalistic responses to the islands
dispute.
Both sides got hurt, but China can absorb the consequences more than Japan.
Another key point is that the dispute shows
how the Chinese fight in every kind of battle space - at sea, in the
air, on the land, in cyber space, in international political space and
in economic space. Total warfare means total to the Chinese. They are
experimenting with that in the Senkakus dispute.
Jordan: For the record. Heavy rainfall, strong
winds and snow hit Jordan for a second day on 9 January, along with
other Middle East countries. The National published images of the road
from Beirut to Damascus closed because of snow. A Jordanian
meteorological department official said Jordan already has received 100%
of its annual rainfall and the season is not half over. The possibility
of snow is predicted for Jerusalem this week.
Egypt: Recent economic analyses of Egypt show that the economic cost of Islamic democracy is heavy.
In the six months of protests about the
preparation of the constitution, the Mursi government has neglected the
economy to try to build its legitimacy. The economy, by most measures,
has come to a halt and 80% of Egyptians voted against Mursi or declined
to vote. Mursi heads a minority government with no money.
The budget deficit rose by 38%, or $13.1
billion over six months; the Egyptian pound slipped 6% against the US
dollar; unemployment rose from 8.9% to 12.4% and GDP growth fell from
5.0 % in 2011 to 0.5 % last year. The decline in GDP is greater than any
other country that experienced an Arab Spring event.
The Egyptian rich did not trust their wealth
to the goodwill of the Mursi government. Foreign reserves were halved
because of capital flight and the transfer of savings abroad.
The outflow led to the imposition of currency
controls at the end of December. Egypt has a 50% trade deficit that used
to be offset by earnings from tourism and remittances from workers
abroad, but the tourists are staying away and remittances have declined.
Standard & Poor's downgraded Egypt's
credit rating to B-minus, six levels below credit grade. Before the
downgrade, Egypt paid 13.54% for a one-year treasury bond. After the
downgrade, the sale of bonds was canceled to avoid higher interest
rates. According to the economic analysts, credit swaps showed Egypt
ranking among the ten worst credit risks, along with Greece and
Pakistan.
Comment: Entitlements and subsidies needed to
be cut, according to Egyptian economic experts, but the government
deferred austerity plans and tax increases in order to get the
constitution passed in December. Shortages of essentials, including
bread, jobs and all kinds of fuel, remain serious.
The government of Qatar has extended $2.5
billion in loans and grants to Egypt as a stop-gap measure. Egypt also
is trying to obtain a $4.8 billion loan from the International Monetary
Fund, but Fund officials doubt Egypt has the determination to implement
the austerity measures they require as a condition for the loan.
Meanwhile, simmering political instability and unsettled economic and
political issues are likely to deter tourists and investors.
End of NightWatch for 9 January.
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