China Response to Hacking Indictment Indicates Rash Leadership and Need to Expand NATO to Asia

Journal of Political Risk, Vol. 2, No. 5, May 2014.

Chinese and Russian joint naval exercise is photographed. One large ship is visible in the background with a smaller one in the foreground.

Chinese and Russian joint naval exercise. In 2013, Russia and China conducted similar exercises near Vladivostok. A Chinese fleet consisting of seven naval vessels participated in the “Joint Sea-2013” Sino-Russian joint naval drills scheduled for July 5 to 12. The eight-day maneuvers focus on joint maritime air defense, joint escorts and marine search and rescue operations. Source: Wikimedia Commons.

Anders Corr, Ph.D.
Publisher of the Journal of Political Risk

China is using a very blunt and escalatory instrument — threatening general deterioration in military relations — to respond to a limited issue of Chinese individuals stealing trade secrets. On May 20, the United States Justice Department indicted five People’s Liberation Army members for hacking United States commercial data.  The remarkable speed with which China responded the following day, and at the highest level, suggests that commercial hacking is an officially-approved state policy on the part of China. The Chinese threat of reduced military cooperation and thereby deteriorating military relations is clumsy in that the Chinese would look better had they simply launched an investigation of the individuals — an investigation that they could later claim shows the indictment as baseless. The broad Chinese threat of deteriorating military relations invites an increase in US military attention to Asia — exactly what the Chinese should be trying to avoid. The clumsiness of the Chinese response to the indictments indicates a rash Chinese leadership prone to irrational military strategies, with consequent market volatility and political instability. The US and its Asian allies should respond with a measured forward deployment of military forces, and redoubled diplomatic energy towards greater alliance cooperation, including between Asian allies and NATO.

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Microfinance Report by the Economist Intelligence Unit (EIU)

The Economist Intelligence Unit produced an insightful and detailed report on global microfinance in 2012, available at http://www.eiu.com/Handlers/WhitepaperHandler.ashx?fi=EIU_MICROFINANCE_2012_WEB_1.pdf&mode=wp&campaignid=microscope2012.

Bangladesh, Philippines, and Nepal are covered, among many other countries. Philippines takes 4th place in overall microfinance business environment rankings. Bangladesh takes 41st place, and Nepal 44th. EIU ranked a total of only 55 countries, so Bangladesh and Nepal are near the bottom. Rates to borrowers are high. In Bangladesh a 27% rate cap decreases the quantity of loans available (inflation of 7-12% in 2012), and in Nepal, government subsidies have kept rates at a comparatively low 18-24% (inflation of 7-9% in 2012). In the Philippines, there are only 1 million micro-finance borrowers of 77 million total population (http://www.census.gov.ph/content/philippines-population-expected-reach-100-million-filipinos-14-years).

Given the high interest rates and limited penetration of microfinance, it is unlikely in its current manifestation to have a large effect on development or stability in Nepal, Bangladesh, or the Philippines.

New People’s Army in the Philippines

The New People’s Army (NPA), an insurgent group in the Philippines, attacked a Del Monte supplier in Bukidnon Province yesterday, causing property damage and casualties (http://www.miamiherald.com/2013/02/19/3242109/1-killed-in-suspected-philippine.html). Despite NPA claims regarding the effect on the environment of the company’s expansion, the attack was likely sparked by failure of the company to pay sufficient extortion money to the rebel group.

Peace process in Philippines unlikely to yield quick security gains

Hopes have recently increased for a peace process in MIndanao (http://www.guardian.co.uk/world/2013/feb/13/philippines-peace-deal-islamist-rebels). However, the process is powered by a politician seeking a capstone to his career, which is insufficient to satisfy the  broad spectrum of insurgents who will continue to have criminal incentives post-agreement. The peace process is unlikely to yield any great security gains in the next year.