Thursday, August 31, 2023
A confluence of global events is raising the geopolitical risk temperatures as rapidly as the meteorological ones without any respite in sight. Each risk component of chaos is not a destabilizing event unto itself, rather it can trigger a domino effect on related and unrelated components.
Aggressively fanning the flames are the ubiquitous mainstream and social media that selectively decide which issues they are providing a hyper-focused echo chamber and which ones are equally high-risk ones that are the proverbial elephant in the room yet blatantly ignored.
Kicking off 2024 are the Taiwanese presidential elections scheduled for January 13, 2024. There are 5 candidates either nominated by a party or who are running as an independent which makes it a highly connected election. The inauguration takes place May 20, 2024.
The victorious party leading the future Taiwan government represents a critical hinge in US-China relations on all matters ranging from economic to military.
Taiwan’s paper tiger military is matched by China’s lack of experience and resources to mount any type of effective invasion or blockade of Taiwan. The Chinese leadership has watched in horror as Russia has stumbled badly in Ukraine despite the superior logistical advantage of a shared border.
Furthermore, Taiwan does not have a binding agreement with the US to defend it from military aggression thus the support it would receive from the US and its allies are ambiguous. Counter-intuitively these political and military ambiguities provide a strong deterrent, but not guarantee, against overt Chinese aggression.
The economic situation in China has probably entered the early stages of deflation as supported by multiple official, unofficial and anecdotal indicators such as plummeting prices, production, high unemployment especially amongst the youth, and falling home prices.
At the forefront is the recent bankruptcy filing by the real estate behemoth Evergrande two years after they defaulted on $360 billion in debt.
The second largest real estate developer, Country Garden, that focuses on projects in 2nd and 3rd tier cities, is $200 billion in debt. The Economist provides a comprehensive overview specifically on Country Garden in an article entitled How Bad Could China’s Property Crisis Get?, dated 19 August 2023.
A worrisome situation is that the Chinese government has suspended the public release of several economic indicators. According to many western economists, Chinese economic figures were often thought of as managed or using inaccurate data resulting in overstated good news or understated bad news. With respect to China, no news is bad news.
On a micro-level, to stem the torrent of investment outflow, the Chinese government has gone so far as to strongly recommend “softer” language with respect to IPO risk descriptions. In the Wall Street Journal article entitled China’s Economy is not Ailing, It’s Evolving dated 11 August 2023, China is strongly requesting changes in the prospectus language such as “adverse changes” to “evolving”, “protracted court proceedings” to “China’s legal system is different from other jurisdictions”, and “change without warning” to “changes from time to time.”
Finally, China faces a nasty demographic crunch with mismatched jobs especially amongst the youth. There are 360 million 16-35 year olds, 25% of the total population, for which many white collar jobs in urban centers have been eliminated. With respect to family life and support, in 2022, 6.8 million couples married which represented half of marriages in 2012.
The worrisome leadership problem is not that China is facing a period of considerably slower growth and increasing debt, rather that the leadership continues to prioritize political loyalty and dogma over economic and demographic reality. Finally, the lack of economic information strongly suggests that deflation has already arrived and that economic hardship is imminent, severe enough to trigger social unrest.
Despite the external and internal bloody chaos in Ukraine and liquidation of “disloyal” military generals, former Wagner head Prigozhin and independently minded billionaires, Putin remains standing. Admittedly it is difficult to ascertain whether his reorganization is a house of cards or the strengthening and consolidation of his political foundation. Whatever the actual political condition, Putin’s predetermined victory in the March 17, 2024 is a slam dunk.
The lack of anti-Putin street demonstrations during Prigozhin’s march on Moscow is probably indicative of the fact that the Putin-Prigozhin rift was more of a personal rather than a broad & deep political matter for the citizenry.
Counter-intuitively, with Putin remaining in power makes it far easier for the US and EU to communicate with a long-time known entity vs a chaotic and unpredictable new regime.
Putin is clearly playing a waiting game with respect to the 2024 US presidential elections, a change in American leadership and foreign policy to allow a face-saving end to the war in Ukraine and Russia’s reintegration into the global political and economic community.
Putin’s present-day weakness is his over-dependence on Chinese support that could falter because of China’s deteriorating economic situation and/or political drift in collaboration with the west to end the war.
Despite the official local, state and government crime statistics, the citizenry at all socio-economic levels have witnessed the dramatic spike in violent crime and resultant lowering of quality of life. One major trigger point is the influx of illegal immigrants who are draining local resources. Exacerbating the situation, law enforcement personnel have resigned and/or retired in record numbers.
With respect to leadership, or lack thereof, the president’s physical frailty and cognitive difficulties are apparent at a level that’s far below the minimum requirements to be an effective world leader at the cusp of chaos. For this reason, he’s a de facto lame duck going into the November 2024 elections.
In the meantime, the trials & tribulations of former president Trump are about to light the fuse to near future urban chaos. Every high-level democratically elected leader has bent, even broken the law. This does not exempt former president Trump if the charges against him are proven true.