Brookings: Topics - China

Premier Li Keqiang of China Goes to India

Tanvi Madan — Sat, 18 May 2013 14:00:00 -0400

On Sunday, Chinese premier Li Keqiang heads out from Beijing for his first visit abroad in that role. His first stop: India. He’s probably wishing the trip had taken place about a month and a half ago. At that time, there was a sense in India that the new leadership in China was reaching out to India for a number of reasons. Over the last month, however, temperatures rose in the Himalayas, as the long festering China-India boundary dispute flared once again. The good news for those interested in stable Sino-Indian relations: the two governments seem to have got past the recent incident. They continued to communicate throughout the crisis. Pre-scheduled China-India talks on Afghanistan were held in the midst of the crisis—their first such dialogue focused on the subject. Chinese and Indian military officers held a border meeting. The Indian foreign minister traveled to Beijing. And Li’s visit is going ahead. The bad news: The border incident reinforced the mistrust that many in India feel toward China and its intentions. Furthermore, it was a reminder that despite increased engagement, bilateral differences have the potential to stall, if not, reverse progress toward more stable relations. Li’s challenge: to get the relationship back on a positive trajectory and begin to convince a skeptical Indian public that the border incident was not representative of the new Chinese leadership’s approach toward India. Overall, the premier has his work cut out for him.

Before mid-April, many observers of Sino-Indian relations noted that under the new Chinese leadership there seemed to be an “upswing in relations.” Chinese president Xi Jinping proposed a five-point formula to improve ties with India. The two countries agreed to discuss Afghanistan. “Positive vibes” were detected at Xi’s subsequent meeting with Indian prime minister Manmohan Singh on the sidelines of the BRICS summit in Durban. The Chinese government indicated that Li soon planned to travel to India.

This trend did not surprise observers. After all, there were enough reasons for Beijing to seek a stable relationship with India: economic ties, cooperation in the multilateral realm and a desire to limit India’s burgeoning relationships with the U.S. and Japan (reports indicated that Chinese officials were eager for the premier to visit India before the Indian prime minister headed to Tokyo in late May), as well as other countries in the region. There were also reasons for the political leadership not to want the relationship with India to deteriorate: such as preoccupation with China’s eastern maritime disputes and the North Korean situation, as well as the need for stability in the region with the impending American withdrawal from Afghanistan.

What did surprise observers was the border incident. Former U.S. deputy secretary of state James Steinberg, who was in India as the crisis played out, said “I don't know what the Chinese leadership is up to…confronting India and Japan, especially when they have been trying to build strong bilateral relations...The Chinese leadership should understand, it will not benefit them in the long run.” The opacity of Chinese decision-making meant that various theories were floated about why Chinese troops had taken the unusual step of setting up camp across the Line of Actual Control (LAC): differing perceptions of the LAC; “a rush of testosterone by local officers;” in response to India building up its border infrastructure; the desire of the People's Liberation Army to assert authority; the result of an internal political power struggle; Chinese expansionism; or Chinese strategic designs against India. One observer contended that a clear motive was near impossible to pinpoint: that “Chinese foreign policy is an enigma wrapped in a mystery.”

Since the resolution of the crisis, Beijing has tried to press a “reset” button, trying to return the relationship to its pre-crisis trajectory. The Chinese ambassador to India unusually took to the editorial pages of an Indian newspaper to emphasize, “To strengthen good-neighbourly and friendly cooperation with India is China’s strategic choice and established policy which will not change.” Chinese officials indicated that greater efforts should be made toward a boundary settlement.

The Chinese government also signaled that the choice of India as the premier’s first stop was very deliberate and a sign of the importance Beijing placed in the Sino-Indian relationship. Hosting an Indian youth delegation, Li put a personal spin on the choice, noting the “the seeds of friendship sown” when he visited India 27 years ago—a trip that he said left a “lasting impact.” Beyond trying to win hearts and minds, he also seemed to want to appeal to Indians’ pocketbooks, talking about the economic benefits of greater ties. Finally, he pointedly mentioned experiencing the “warmth and hospitality of Indian people.”

That hospitality will certainly be forthcoming on the part of key policymakers in the Indian government. Delhi has its own reasons for seeking stable relations with Beijing. Thus, Indian officials had joined their Chinese counterparts in playing down the border incident and seeking to resolve it speedily. Since it’s been resolved, both sides have sought to highlight their success in defusing the crisis, pointing to that as a sign of progress in the relationship. During that visit, they will work toward agreement on certain issues. Expectations are that there will be developments on the economic front. China-India watchers will also be looking for any sign of progress on the border and Brahmaputra river issues.

Among the Indian public, the welcome for Li is likely to be cooler. The recent tensions at the border—heavily covered in the Indian media—reinforced negative impressions of China among many in the Indian public. Many—even beyond the public—will take with a larger grain of salt the new Chinese leadership’s assurance that it intends for China to rise peacefully, be a responsible state, and seek good relations with India. The crisis has reinforced the narrative that has prevailed in many quarters since the 1962 China-India war: that China only understands strength; that while Beijing’s leaders say China and India “must shake hands,” they cannot be trusted—that one hand held out might just be a precursor to the other stabbing one in the back.

The border incident has also kept the focus on bilateral differences and even beyond the border issues there are many of those: China’s growing political and economic ties with India’s neighbors, its Indian Ocean ambitions, the overall lack of trust, cyber-security concerns, Tibet, the diversion of the waters of the Brahmaputra, a trade imbalance and restricted market access in China for Indian companies, the sense that China does not respect India and/or that it will seek to prevent India’s rise and, significantly, China’s relationship with Pakistan, which, of course, is Li’s second stop.

The incident also seemed to strengthen the hands of those inside and outside government who are skeptical of China’s intentions towards India and weakened the voices of those urging engagement with that country. Furthermore, the crisis negatively affected the credibility of the Indian government on issues related to security broadly and China in particular. This matters because significant bilateral progress on crucial fronts will require concessions from both sides—concessions that might now be harder for the Indian government to sell on its side.

Overall, that’s a lot of mistrust and skepticism to turn around in one visit. But if Li Keqiang wants to see the relationship prosper, the trip is a good time to start trying on two fronts. First, substance: progress on key issues will go a long way in building trust. Second, style: Li should take the opportunity to introduce himself and reintroduce the new Chinese leadership not just to Indian government officials and private sector leaders, but also to the Indian public—for it might be tempting to dismiss public sentiments, but they will play a key role in setting the limits of the relationship.

Authors

Tanvi Madan

Image Source: © China Daily China Daily Information Corp - CDIC / Reuters

American Foreign Policy in Retreat? A Discussion with Vali Nasr

Tue, 14 May 2013 09:30:00 -0400

Event Information

May 14, 2013
9:30 AM - 11:00 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

For the past decade, a debate has raged about the future of American power and foreign policy engagement. In his new book, The Dispensable Nation: American Foreign Policy in Retreat (Knopf Doubleday Publishing, 2013), Brookings Nonresident Senior Fellow Vali Nasr questions America’s choice to lessen its foreign policy engagement around the world. Nasr argues that after taking office in 2009, the Obama administration let fears of terrorism and political backlash confine its policies to that of the previous administration, instead of seizing the opportunity to fundamentally reshape American foreign policy over the past four years. Meanwhile, China and Russia – rivals to American influence globally – were quietly expanding their influence in places where the U.S. has long held sway. Nasr argues that the Obama administration’s foreign policy decision making could have potentially dangerous outcomes, and, what’s more, sells short America’s power and role in the world.

On May 14, Foreign Policy at Brookings hosted Vali Nasr for a discussion on the state of U.S. power globally and whether American foreign policy under the Obama administration is in retreat. Brookings Senior Fellow Robert Kagan joined the discussion, which was moderated by Vice President Martin Indyk, director of Foreign Policy.

Video

Audio

American Foreign Policy in Retreat? A Discussion with Vali Nasr

The U.S., China and Africa: Pursuing Trilateral Dialogue and Action

Mon, 13 May 2013 14:30:00 -0400

Event Information

May 13, 2013
2:30 PM - 4:30 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

With six of the ten fastest growing economies in world, sub-Saharan Africa is attracting both American and Chinese investors. The growing importance of sub-Saharan Africa to the global economy has made the region a focal point for the differing policies of the United States and China. China recently pledged significant financing to Africa over the three year period from 2012-2014, while the U.S. looks to extend the Africa Growth and Opportunity Act ahead of schedule. Despite the opportunities and growth in the region, the U.S., China and Africa all face shared and separate challenges in the areas of security, trade, investment, foreign policy, and natural resource extraction and management.

On May 13, the Africa Growth Initiative and the John L. Thornton China Center at Brookings, with the Institute for Statistical, Social, and Economic Research at the University of Ghana and the Chinese Academy of Social Sciences in Beijing, hosted a discussion to examine the relationships among the U.S., China and African states. This forum was the first in a series, which brings a balanced perspective to the examination of the challenges and opportunities for trilateral dialogue and action.

Video

The U.S., China and Africa: Pursuing Trilateral Dialogue and Action

Audio

The U.S., China and Africa: Pursuing Trilateral Dialogue and Action

United States Policy towards Northeast Asia

Richard C. Bush III — Tue, 07 May 2013 14:37:00 -0400

Editor's note: This article originally appeared in the April 2013 edition of SERI Quarterly.

With the Obama administration making the transition to its second term, it is appropriate to review its policy goals towards Northeast Asia and whether policy implementation can be sustained. In this essay, I review what senior officials have said on these subjects, and consider the challenge of coping with the rise—or revival—of China, while focusing more sharply on the Korean Peninsula.

Declaratory policy

Three texts reveal how the United States government views its interests and objectives towards Asia. Chronologically, they are: Secretary of State Hillary Rodham Clinton’s October 2011 article in Foreign Policy; President Obama’s speech to the Australian parliament on November 17, 2011; and National Security Adviser Tom Donilon’s remarks to the Center for Strategic and International Studies.[1] Five topics merit attention: terminology; the purposes of policy; its scope; the approach to China; and sustainability.

In terminology, two words have gained the greatest currency: “pivot” and “rebalancing.” “Pivot” is a vivid word that plays upon Obama’s love of basketball, it also has a rather absolutist connotation. “Rebalancing,” on the other hand, is more relativistic, both in terms of where America places its priorities geographically and which policy arenas it emphasizes. The word that is least appropriate for Northeast Asia is “return,” which had some currency in the early part of the administration. “Return” may have been accurate for Southeast Asia but not for Northeast Asia.

In terms of the purposes of rebalancing, senior officials spoke in different but substantively convergent ways:

Clinton referred to “harnessing Asia’s growth and dynamism”; to “maintaining peace and security across the Asia-Pacific”; to responding to the wishes of the region itself; and, in effect, the long, benign impact of America’s presence in and posture toward the region (“We are the only power with a network of strong alliances in the region, no territorial ambitions, and a long record of providing for the common good. Along with our allies, we have underwritten regional security for decades . . . and that in turn has helped create the conditions for growth.”)
Obama spoke simply of a “large and long-term role in shaping this region and its future, by upholding core principles and in close partnership with friends and allies.”
Donilon also implied a “shaping” objective, even though he did not use the word. He said, “We aspire to see a region where the rise of new powers occurs peacefully; where the freedom to access the sea, air, space, and cyberspace empowers vibrant commerce; where multinational forums help promote shared interests; and where citizens increasingly have the ability to influence their governments and universal human rights are upheld.”

[1] Hillary Rodham Clinton, “America’s Pacific Century,” Foreign Policy Magazine, October 11, 2011 (www.state.gov/secretary/rm/2011/10/175215.htm); “Remarks by President Obama to the Australian Parliament—As Prepared for Delivery,” November 17, 2011, White House website (http://www.whitehouse.gov/the-press-office/2011/11/17/remarks-president-obama-australian-parliament); “Remarks by National Security Advisor Tom Donilon—As Prepared for Delivery,” November 15, 2012, White House website (http://www.whitehouse.gov/the-press-office/2012/11/15/remarks-national-security-advisor-tom-donilon-prepared-delivery).

Downloads

Download the full article

Authors

Richard C. Bush III

Publication: SERI Quarterly

Image Source: © Kevin Lamarque / Reuters

Chinese National Security Decision-making: Processes and Challenges

Yun Sun — Mon, 06 May 2013 16:03:00 -0400

In studies of contemporary China, information about the national security decision-making process is largely absent, despite the abundance of information and analysis on leadership politics and domestic policy-making. A proliferation of foreign policy actors in China has attracted much attention from researchers, leading to a booming number of investigations into the governmental and non-governmental players involved. The processes themselves―in which these players operate and interact to produce the eventual policy decisions―have eluded academic scrutiny, mostly due to the scarcity of available information. The topic, however, is critically important in achieving an accurate understanding of China’s national security policies which often seem unclear and plagued by conflicting messages.

In the Chinese context, the definition of “national security” is significantly different from that in the United States. For the American policy community, the term “national security” usually refers to the country’s external national security interests and threats. The responsibility for coordinating national security affairs lies primarily with the National Security Council. In China’s case, the term “national security” encompasses both domestic/internal and foreign/external security and, therefore, has a much broader connotation. This paper is primarily focused on the external dimensions of China’s national security. There are many overlapping aspects between China’s national security policy and its foreign policy, as the latter also serves to protect China’s national security interests. However, because national security also covers military security, national defense, economic security and other non-traditional security challenges, the framework and coverage is broader than with foreign policy.

This paper examines three processes of China’s national security decision-making: the decision-making at the top level, the policy-coordination process conducted through the National Security Leading Small Group (NSLSG), and the informational process for national security decision-making. Generally speaking, the supreme decision-making authority in China is monopolized and exercised through the collective leadership of the Politburo Standing Committee; this is especially true with regard to “strategically important” issues, such as Sino-U.S. relations. However, the paramount leader at the time of this writing, President Hu Jintao (the Politburo’s designated person for national security affairs) commanded large authority and privilege in determining regular national security policies. His primary advisor on national security (at the time of this writing State Councilor Dai Bingguo) played a central role in informing and advising him on key policy decisions. As the Director of the Foreign Affairs Leading Small Group (the same organization as NSLSG),[1] Dai also carried responsibility for inter-agency policy consultation and coordination through the NSLSG/FALSG. Information for national security decision-making is produced primarily by participating agencies and think tanks, but there is a standard process of screening, organizing, and disseminating that allows information to flow to the top.

A fundamental challenge for China’s national security decision-making system lies in the conflict between the need for centralization and the diffusion of power (collective leadership) at the top level. Decisions on strategically important issues must be based on consensus, which is created through time-consuming debates; consensus-building proves especially problematic when a timely response is required. As an informal and ad-hoc committee, the NSLSG does not operate as the core national security team designated to follow, analyze, and coordinate daily national security affairs, nor does it have the adequate human resources and professional capacity to play that role. In reality, its role is more or less confined to the organizer of research and coordinator of policies. Its authority on national security affairs is further undermined by unbalanced civil-military relations and the lack of civilian oversight over daily military operational activities. In the informational processes, the players in the Chinese system are extremely risk-averse. Confined by agency perspectives and career advancement interests, they are reluctant to report new findings that are not in line with established conventional wisdom.

Understanding that most of the challenges in the Chinese national security system have deep historical, political and structural roots, any attempt to address them must be bold and might seem politically unrealistic. Nevertheless, the recommendations offered in this paper are aimed at addressing the fundamental deficiencies of the current system. Their feasibility depends on the future of political reform, which although widely agreed as inevitable, has thus far been successfully avoided.

[1] The general understanding of the relationship between FALSG and NSLSG in China is that it is literally the same organization with two different titles (一个机构两块牌子). However, several government analysts pointed out that within the same organization there is a distribution of labor on national security and foreign policy between two different bureaus.

Downloads

Download the full paper

Authors

Yun Sun

Image Source: © Jason Lee / Reuters

Obama's Foreign Policy in his Second Term

Martin S. Indyk — Thu, 02 May 2013 00:00:00 -0400

Editor's note: In an interview with ABC Lateline's Tony Jones, Martin Indyk discusses the challenges that President Obama faces in dealing with the chaos in Syria and the rise of Iran. Read an excerpt below.

Tony Jones: Here is our guest, and as I said earlier, Martin Indyk gave a wide-ranging speech at the Lowy Institute today on U.S. President Obama's emerging global strategy and the many challenges he faces.

Second-term presidents look to their legacy, and with the U.S. worn out by failures in the Middle East, the two longest wars in its history, Obama's main game has been the pivot to Asia, in which Australia has a key role to play.

But while pivoting away from the Middle East, the President must still face the rise of Iran and its nuclear weapons program and the prospect that Syria may be degenerating into a failed state. And again, in Syria, the question of weapons of mass destruction, chemical weapons in this case, could be the game changer.

So what lies ahead for the U.S. President?

Martin Indyk is the vice president and director of the foreign policy program at the Brookings Institution in Washington, D.C. He's a former U.S. ambassador to Israel and he joins us now.

Thanks for being here.

Martin Indyk: Nice to see you again, Tony. Thank you.

Jones: Now, you began your speech today by saying that we're in a plastic moment in international affairs. What do you mean by that?

Indyk: Well, there is I think an emerging global order in which rising powers, particularly China and India in this part of the world, are pushing for a role on the international stage and it's a moment in which there's a certain malleability to the shaping of that order in which I think the United States has a critical role to play, just as it did after the Second World War, in supporting a liberal international order, the kind of order that the United States and Australia share in common with so much of the Western world. And that's the challenge for President Obama, because in his next four years, no longer needing to worry about getting re-elected - he cannot run again - he has a chance to bend history in the direction of a more peaceful, more prosperous, more liberal international order.

Jones: Yeah, OK. So you describe Obama's pivot to Asia as the closest thing we may ever see to an Obama Doctrine. It has very big implications for Australia. How radical a shift is it in reality?

Indyk: I think it's more of a recognition that for 10 years, the previous 10 years, the previous decade, the United States has been preoccupied with the war on terrorism and bogged down in these two wars in Iraq and Afghanistan and basically has taken its eye off the ball. A lot of other things are going on in other parts of the world, particularly in the Asia Pacific region. And the United States simply wasn't paying attention; it was basically absent from the arena. Now it is paying attention and the President's pivot, as he calls it, to the Asia Pacific region is an indication of a strategic shift because of the recognition of the challenges and opportunities that lie here in this part of the world for the United States.

Authors

Martin S. Indyk

Publication: ABC Lateline

Image Source: © Kevin Lamarque / Reuters

NATO and the Costs of Star Wars

Clara M. O'Donnell — Wed, 01 May 2013 00:00:00 -0400

Over the last decade, the US has spent tens of billions of dollars constructing a shield to stop nuclear missiles from North Korea or Iran reaching its soil. So far, the shield does not work. Fortunately for the Americans, neither Pyongyang nor Tehran has nuclear missiles that could hit the US. Unfortunately, however, America's missile defence programme has upset China and Russia, two countries that do have nuclear arsenals that could reach its homeland. America's European partners in NATO should try to convince Washington to scale back its missile defence ambitions for the next few years. Not only would this allow the US government to spend its shrinking defence budget on more pressing military needs. It would also improve European security by reducing tensions between NATO and Russia.

Since the collapse of the Soviet Union, the US has been increasingly worried about nuclear attacks by 'rogue' states. In 1998, a study group chaired by Donald Rumsfeld predicted that North Korea and Iran could field intercontinental ballistic missiles within five years. Today, however, Iran has neither intercontinental missiles nor a nuclear bomb. In March of this year, a report from the Pentagon's intelligence agency (erroneously declassified) assessed "with moderate confidence" that Pyongyang could build a nuclear device that fits on a missile. But there is still no evidence that North Korean missiles are sophisticated enough to reach the US.

Although the American mainland is not currently under threat, every president since George H.W. Bush has sought to deploy nation-wide defences against a limited attack by ballistic missiles. Reviving some of President Ronald Reagan's 'star wars' ambitions, the US has had missile interceptors deployed in Alaska and California since 2004. Both the George W Bush and Obama administrations have also had various plans to deploy interceptors against intercontinental missiles at bases in Europe. (The Obama administration, working with NATO, has also been deploying interceptors in Europe to protect Europeans and US troops in the region against shorter-range missiles from Iran – a threat which does exist.) In March, Secretary of Defence Chuck Hagel announced that because of technical problems and budgetary constraints, the US is suspending its efforts to build Europe-based strategic interceptors. He also said that in response to the bellicose attitude of North Korea's new leader, the US will add 14 missile interceptors in on its West Coast, and perhaps deploy a few more on the East Coast, too.

The Obama administration has been wise to cancel the European leg of its strategic missile defence plans. Several recent studies had highlighted significant shortcomings in the programme. For example, a 2012 report by the National Academy of Sciences concluded that the interceptors planned for Europe would have been too slow to stop an incoming missile. But the US would be ill advised to increase the number of interceptors on the West – and possibly East – Coast. Studies have shown that the interceptors in Alaska and California do not work well either. According to Congress' Government Accountability Office, ten out of the 30 interceptors rely on technology which has never intercepted a missile during tests. The GAO estimates that it will take several years to repair this technology, costing the US taxpayer an additional $700 million. Hagel has promised to fix these glitches before the new interceptors are deployed. But the Pentagon does not yet have a solution to another big problem. None of its interceptors can distinguish between an incoming warhead and debris or decoys. (Ballistic missiles can easily carry decoys in addition to warheads.)

America's strategic missile defence efforts have made the US taxpayer fund a weapon that does not work to tackle a threat that does not exist. They have also antagonised China and Russia. Both countries worry that US technological breakthroughs could undermine their strategic deterrents. Moscow has been most displeased. The Kremlin has been asking for legal guarantees that the US would not direct its missile defences against Russia's strategic nuclear weapons. To reassure Russia, the Obama administration has encouraged Moscow to co-operate with NATO's defence programme against Iranian short and long-range missiles. (Moscow is less worried about NATO's defences against Iranian short-range missiles because the interceptors used would be too slow to stop a Russian strategic missile.) Washington has also been willing to provide Moscow political guarantees that its nuclear deterrent is not under threat.

But so far, the Obama administration has refused to give Russia legal guarantees. The US has made such commitments in the past. The Anti-Ballistic Missile Treaty established limits on what Moscow and Washington could do in this area from the 1970s until 2002. President George W Bush then withdrew from the agreement in order to pursue America’s missile defence ambitions unhindered. The Obama administration fears that Republican senators – who are keen on missile defence – would not ratify a treaty that would constrain the US. As a result, missile defence has become one of the most contentious issues in a troubled US-Russia relationship. Moscow has refused to negotiate further cuts in its nuclear arsenal until the issue is resolved. Last year, the chief of the General Staff of the Russian armed forces threatened to attack the European NATO countries hosting US missile defences. And according to press reports, Russian bombers have been simulating strikes against American missile defence installations.

Now that Hagel has cancelled the European leg of US strategic missile defences, there is a chance that NATO and Russia could end their dispute. Senior American and Russian officials have resumed talks about Russia co-operating with NATO's missile defence efforts. US policy-makers have also been encouraging Moscow to negotiate new bilateral nuclear reductions – a top priority for President Barack Obama. According to some Russian officials, President Vladimir Putin may be open to an agreement when he meets President Obama at the G8 in June or at their bilateral summit in September. But the Russians still want legal guarantees on strategic missile defences.

Europeans welcome the possibility of improved NATO-Russia ties. Most of them have never been convinced of the need for, or feasibility of, strategic missile defences and many disliked Washington's decision to leave the ABM treaty. Germany and others have been keen for Russia to co-operate with NATO's missile defence programme as a way to alleviate tensions. To maximise the chances of a deal between Washington and Moscow, Europeans should now encourage their American allies to include legal guarantees on missile defence in a new nuclear arms reduction treaty with Russia. Steven Pifer and Michael O'Hanlon from the Brookings Institution point out in their book 'The opportunity' that treaty limits could still allow the US to deploy all its planned defences against North Korea and Iran: the US and Russia could for example agree to each having a maximum of 125 interceptors capable of engaging intercontinental missiles. (The ABM treaty initially allowed for 200.) The treaty could also be limited to ten years, so that both sides could reconsider its ceilings in light of how the threats from North Korea and Iran evolve.

The White House, and Europeans, would struggle to convince some Republican senators to ratify such a treaty. But without it, Russia is unlikely to reduce its numerous tactical nuclear weapons – an arsenal that worries both Democrats and Republicans. Europeans should also discourage their US counterparts from deploying additional interceptors against strategic missiles until tests have shown them to be effective. The risk of wasting large sums of money at a time of savage defence cuts should help senators to reassess their views on missile defence.

As Greg Thielmann, a former senior US state department intelligence official, remarks, Europeans have "tamed ill-considered American instincts" in the past: in the 1980s, Europeans encouraged a reluctant Reagan administration to negotiate the Intermediate-Range Nuclear Forces Treaty. For the benefit of NATO-Russia relations and global arms control, the Europeans should encourage their ally to reassess its stance again.

Authors

Clara M. O'Donnell

Publication: Centre for European Reform

Image Source: © Yves Herman / Reuters

Is Obama’s Red Line a Green Light?

Salman Shaikh — Mon, 29 Apr 2013 00:00:00 -0400

The use of chemical weapons by Syrian President Bashar al-Assad's regime was finally blown open last week. In a letter to U.S. lawmakers, the White House stated that U.S. intelligence agencies believed "with varying degrees of confidence" that Syria had used the nerve agent sarin on a "small scale." The letter followed others sent to U.N. Secretary General Ban Ki-moon by Britain and France alleging the use of chemical weapons in Syria, and similar assessments by Israeli military intelligence in the last few weeks.

Still, President Barack Obama's administration sounded a cautious note. Asked whether Assad crossed the "red line" Obama drew last year that could spur American intervention, a U.S. official replied, "we're not there yet." The White House continues to contend that the evidence is not "airtight," and that it needs further corroboration. In meeting with King Abdullah of Jordan on Friday, Obama stated that "there are a range of questions around how, when, where these weapons may have been used."

While these are important questions, especially a decade after the intelligence failure in Iraq, the evidence already gathered by Western countries from inside Syria provides significant evidence of chemical-weapons use by the Assad regime. Here is what I have learned about the regime's use -- and logic for the use -- of chemical weapons over the past six months.

The Assad regime's scientists have been experimenting for more than a year with mixtures of toxic and poisonous gasses that could be used to "cleanse areas" of what it calls "terrorists" -- the rebel forces it is fighting. Its security and military apparatus has sought to devise methods to use artillery shells or aircraft to deliver chemical weapons in "localized ways" -- in areas of one or one and a half square kilometers.

The regime's logic was that the relentless bombardment of rebel-controlled areas, including in the neighborhoods around the main cities of Aleppo, Homs, and Damascus, had forced most civilians to leave. Civilian casualties, in this warped thinking, could therefore be kept to a minimum if chemical weapons were used in these areas. This was important if the regime was to avoid the attention of the international community, especially the United States, which clearly did not want to intervene in Syria.

I first heard this frightening information in the late summer and fall of last year. It came from a small number of privileged Syrians who often travelled to and from Damascus. I had gotten to know and trust them, especially as their information was often corroborated later by other sources and events. All spoke often to current and former senior security officers and regime personalities from the Assad regime's feared security forces, including the presidential guard, Syrian military intelligence, and Syrian air force intelligence -- people they had known in some cases since childhood.

Listening to them, it was clear to me that the regime had the intention to use these horrendous weapons -- and that it would do so as it came under further pressure in key strategic areas, especially the major cities in the west of the country.

According to my interlocutors, Assad and those closest to him had been emboldened by the international community's weak response to his bloody military campaign. The United Nations claimed in February that the death toll from the fighting in Syria was well over 70,000 people, while, during that same month, a lieutenant from Syrian military intelligence informed one of my Syrian interlocutors that the regime estimated that around 85,000 civilians had been killed, with many more thousands "missing."

Successive statements from Obama and senior U.S. officials, these interlocutors said, had been interpreted by the regime as a "green light" to continue its campaign. The exclusive focus on political and diplomatic solutions, as well as the international community's rising fear of Islamic jihadists, further reinforced the regime's belief that "the U.S. and its Western allies did not mind the current military operations," according to a retired general in Damascus. "Like any war, there are political and diplomatic efforts, while it is the winner that dictates terms in the end."

In the eyes of the regime, therefore, Obama's "red line" prohibiting the use of chemical weapons -- first drawn last August, in the midst of an election campaign -- had to be tested.

Read the full article »

Authors

Salman Shaikh

Publication: Foreign Policy

Pentagon Paying China — Yes, China — To Carry Data

Noah Shachtman — Mon, 29 Apr 2013 00:00:00 -0400

The Pentagon is so starved for bandwidth that it’s paying a Chinese satellite firm to help it communicate and share data.

U.S. troops operating on the African continent are now using the recently-launched Apstar-7 satellite to keep in touch and share information. And the $10 million, one-year deal lease — publicly unveiled late last week during an ordinarily-sleepy Capitol Hill subcommittee hearing — has put American politicians and policy-makers in bit of a bind. Over the last several years, the U.S. government has publicly and loudly expressed its concern that too much sensitive American data passes through Chinese electronics — and that those electronics could be sieves for Beijing’s intelligence services. But the Pentagon says it has no other choice than to use the Chinese satellite. The need for bandwidth is that great, and no other satellite firm provides the continent-wide coverage that the military requires.

“That bandwidth was available only on a Chinese satellite,” Deputy Assistant Secretary of Defense for Space Policy Doug Loverro told a House Armed Services Committee panel, in remarks first reported by InsideDefense.com. “We recognize that there is concerns across the community on the usage of Chinese satellites to support our warfighter. And yet, we also recognize that our warfighters need support, and sometimes we must go to the only place that we can get it from.”

The Apstar-7 is owned and operated by a subsidiary of the state-controlled China Satellite Communication Company, which counts the son of former Chinese premier Wen Jiabao as itschairman. But the Pentagon insists that any data passed through the Apstar-7 is protected from any potential eavesdropping by Beijing. The satellite uplinks and downlinks are encrypted, and unspecified “additional transmission security” procedures cover the data in transit, according to Lt. Col. Damien Pickart, a Defense Department spokesperson.

“We reviewed all the security concerns, all of the business concerns with such a lease,” Loverro said. “And so from that perspective, I’m very pleased with what we did. And yet, I think the larger issue is we don’t have a clear policy laid out on how do we assess whether or not we want to do this as a department, as opposed to just a response to a need.”

Every new drone feed and every new soldier with a satellite radio creates more appetite for bandwidth — an appetite the military can’t hope to fill with military spacecraft alone. To try to keep up, the Pentagon has leased bandwidth from commercial carriers for more than a decade. And the next decade should bring even more commercial deals; in March, the Army announced it was looking for new satellite firms to help troops in Afghanistan communicate. According to a 2008 Intelligence Science Board study (.pdf) — one of the few public reports on the subject — demand for satellite communications could grow from about 30 gigabits per second to 80 gigabits a decade from now.

The Chinese are poised to help fill that need — especially over Africa, where Beijing has deep business and strategic interests. In 2012, China for the first time launched more rockets into space than the U.S. – including the Chinasat 12 and Apstar-7 communications satellites.

Relying on Chinese companies could be a problematic solution to the bandwidth crunch, however. U.S. officials have in recent years publicly accused Chinese telecommunications firms of being, in effect, subcontractors of Beijing’s spies. Under pressure from the Obama administration and Congress, the Chinese company Huawei was rebuffed in its attempts to purchase network infrastructure manufacturer 3Com; in 2010, Sprint dropped China’s ZTE from a major U.S. telecommunications infrastructure contract after similar prodding. Last September, executives from the Huawei and ZTE were brought before the House intelligence committee and told, in effect, to prove that they weren’t passing data back to Beijing. “There’s concern because the Chinese government can use these companies and use their technology to get information,” Rep. Dutch Ruppersberger, said at the time. The executives pushed back against the charges, and no definitive links to espionage operations were uncovered. But the suspicion remains. And it isn’t contained to these two firms.

“I’m startled,” says Dean Cheng, a research fellow and veteran China-watcher at the Heritage Foundation. “Is this risky? Well, since the satellite was openly contracted, they [the Chinese] know who is using which transponders. And I suspect they’re making a copy of all of it.”

Even if the data passing over the Apstar-7 is encrypted, the coded traffic could be used to give Chinese cryptanalysts valuable clues about how the American military obfuscates its information. “This is giving it to them in a nice, neat little package. I think there is a potential security concern.”

And even if the Chinese don’t intercept the data, there’s always the danger of them suddenly deciding to block service to the American military.

For his part, Loverro says the Department of Defense will be reviewing its procedures to ensure that future satellite communications deals both let troops talk and let them talk in private. The Pentagon will get another opportunity shortly: the Apstar-7 deal is up on May 14, and can be renewed for up to three more years.

Authors

Noah Shachtman

Publication: Danger Room (Wired)

Becoming a Techno-Industrial Power: Chinese Science and Technology Policy

Joel R. Campbell — Mon, 29 Apr 2013 09:05:00 -0400

Editor's Note: This paper by Joel R. Campbell, which outlines the history of Chinese science and technology innovation since the founding of the People's Republic, is the April 2013 installment in the Issues in Technology Innovation paper series, which is part of the Center for Technology Innovation in Governance Studies at Brookings.

China’s science and technology policy has developed through four phases since the founding of the People’s Republic in 1949. In the first phase, to 1959, technology supported the creation of heavy industry along Soviet lines, while the second, up through the end of the Cultural Revolution in 1976, saw economic stagnation and ideological domination of technology projects. A third phase, under reforms launched by Deng Xiaoping and carried forward by Jiang Zemin to 2001, stressed building of an independent research base and the gradual shift to market-oriented, product-driven research. Since 2002, Chinese policy has increasingly backed high technology industrialization, along with support for the nascent green technology industry.

Chinese technology policymakers also have promoted an innovation-driven economy. The Ministry of Science and Technology (MOST) is the key policymaking and policy coordination organ, and it funds the five most important technology development projects:

The Key Technologies Research and Development Program, focused on industrial technology
The 863 Program, centered on basic and applied research on marketable technologies
The Torch Program, which supports commercialization of high tech products
The 973 Program, funding multi-disciplinary projects in “cutting edge” technology, and
The Spark Program, promoting development and use of technology in rural areas

Science and industrial parks are key venues for high tech research and development (R&D). Currently, there are fifty-four such parks, mostly located in large cities or provincial capitals. Firms operating in the parks must create or apply technology in high tech fields, devote at least three percent of gross revenues to R&D, and employ at least thirty percent of college degreed workers. The information technology (IT) industry is one of the leading industries in the science parks, and has received special policy recognition since 2000.

The space program has become one of China’s proudest recent accomplishments. Building steadily on its experience with military and civilian missile technology, China has already launched four manned space missions, and has ambitious plans for a space station and unmanned exploration of the Moon, along with possible manned lunar missions. China has also made a major push into green (or “clean”) technology, driven by twin concerns about dependence on foreign oil and serious environmental degradation within China.

Download the paper » (PDF)

Downloads

Download the paper

Authors

Joel R. Campbell

Image Source: © Jason Lee / Reuters

Taiwan’s Response to an Evolving Security Environment

Mon, 29 Apr 2013 14:00:00 -0400

Event Information

April 29, 2013
2:00 PM - 4:15 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

The Ministry of National Defense of the Republic of China (Taiwan) released its second Quadrennial Defense Review (QDR) in early March. The QDR presents a comprehensive examination of developments in Taiwan’s security environment and explains updates in its planning and strategy. As in the United States and other countries, the document is a reflection of the president’s strategic priorities, a serious planning exercise and a public relations tool which seeks to inform the public and win its support.

On April 29, the Center for Northeast Asian Policy Studies (CNAPS) at Brookings and the Freeman Chair in China Studies at the Center for Strategic and International Studies (CSIS) hosted a discussion on Taiwan’s recently released QDR. Vice Minister of National Defense for Policy Andrew N.D. Yang, presented the Ma Ying-jeou administration’s views of the Asia-Pacific security environment and Taiwan’s defense transformation. Chia-Sheng Chen, director of the defense ministry’s Defense Net Assessment Division, explained the QDR in more detail. Phillip Saunders of the National Defense University added his personal perspective on the security challenges Taiwan faces and the way it addresses them in the QDR.

Audio

Transcript

Transcript (.pdf)

Event Materials

29 taiwan security transcript

North Korea through Chinese Eyes

Tue, 23 Apr 2013 03:30:00 -0400

Event Information

April 23, 2013
3:30 PM - 5:30 PM CST

School of Public Policy and Management Auditorium
Brookings-Tsinghua Center

Beijing, China

North Korea’s threats against the outside world have reached new heights in recent months, triggering mounting concern across Northeast Asia about the possibilities of instability, crisis and even war. Yet there is nothing especially unusual or new in North Korean statements and actions, even if its recent behavior seems particularly extreme and worrisome. Its conduct reflects the isolation and deep frustrations of leaders in Pyongyang, the persistence of dynastic rule in North Korea, its economic weakness in relation to its neighbors (especially the Republic of Korea) and the unwillingness of outside powers to legitimate the DPRK’s claims to status as a nuclear-armed state.

On April 23, the Brookings-Tsinghua Center hosted a public event for Dr. Jonathan Pollack, senior fellow and director of the John Thornton China Center at the Brookings Institution. Pollack is a specialist on East Asian international politics and security. His latest book, No Exit: North Korea, Nuclear Weapons, and International Security, was published in May 2011 by Routledge for the International Institute for Strategic Studies. In his remarks, Pollack briefly reviewed North Korea’s political history and assessed how Chinese views of the DPRK have shifted in recent years, and then weighed in on how North Korea’s future could affect Northeast Asia as a whole and U.S.-China relations in particular.China is now on the road to redefining its interests on the peninsula and its relationship with North Korea, and to striking discreetly a balance among the various stakeholders, as Pollack indicated.

Ms. Meng Bo, associate director of the Brookings-Tsinghua Center gave the opening remarks for the event. Professor Wang Dong from Peking University shared his insights on North Korea from the perspective of a Chinese scholar. After the program, Dr. Pollack answered questions from the audience.

Video

North Korea through Chinese Eyes

China-Taiwan-United States Relations

Tue, 23 Apr 2013 09:00:00 -0400

Event Information

April 23, 2013
9:00 AM - 3:00 PM EDT

Conference Room B-1
Center for Strategic and International Studies
1800 K Street, NW
Washington, DC

Register for the Event
China and Taiwan have improved both the tone and substance of their relationship over the past five years, especially on bilateral economic issues. But these advances have not been matched by progress on more difficult political or multilateral issues, and some observers believe that the improvement of cross-Strait relations will lose momentum as these more sensitive issues come up for discussion. The respective political calendars in China and Taiwan may further complicate matters.

On April 23, the Center for Northeast Asian Policy Studies at Brookings and the Freeman Chair in China Studies at the Center for Strategic and International Studies hosted a public seminar featuring senior experts from the United States, China and Taiwan. Panelists analyzed the domestic forces influencing cross-Strait relations; prospects for developments in the political, security and regional economic arenas; and possible roles for the United States. Raymond Burghardt, chairman of the board of the American Institute in Taiwan, delivered a keynote address.

Watch video from the event at csis.org »

Transcript

Uncorrected Transcripts (.pdf)

Event Materials

20130423_china_taiwan_us_transcript

Reviewing Ma Ying-jeou’s Strategies for National Security in Taiwan

Richard C. Bush III — Fri, 19 Apr 2013 14:00:00 -0400

Taiwan’s president Ma Ying-jeou spoke Monday evening by video-link to a group of distinguished scholars at Stanford University. Although nothing Mr. Ma said was particularly surprising, his remarks did have three important features.

In the first part of his the speech, the president reviewed the basis for re-engagement with China after his first inauguration in 2008 and the cooperation that has been subsequently forged. This was not, of course, the first time that Ma has reviewed this record, and by now the process is well and widely understood. Yet it is still a story worth re-telling, if only to remind us that nothing about cross-Strait relations after 2008 was fore-ordained. Leaders in both China and Taiwan had to take certain risks for a more stable relationship. They had to find a mutually acceptable premise for interaction (the 1992 consensus). And agree just as clearly on what would be discussed (easy, mainly economic, issues) and what was off the agenda (e.g. independence or unification). What new agreements will be signed and whether the two sides move toward political talks is quite uncertain at this point, but what has already been achieved was neither trivial nor automatic.

Later on, Mr. Ma provided a concise yet clear statement of Taiwan’s national security strategy. To quote him in full: “The first part involves institutionalization of the rapprochement with mainland China so that neither side would ever contemplate resorting to non-peaceful means to settle their differences. The second part involves making Taiwan a model world citizen by upholding the principles of a liberal democracy, championing free trade and providing foreign aid to the international community. The third part involves strengthening national defense capability.” The first of these is particularly interesting, because it expresses an essentially liberal, internationalist approach to ensuring peace and stability: that is, binding a potential adversary to a cooperative relationship so that the stakes of initiating conflict are just too high. But the other two parts of the president’s strategy clearly indicate that he is not placing all his eggs in a Chinese basket.

In discussing Taiwan’s relations with the international community, President Ma properly cites an important, recent achievement. That is the agreement reached between Taiwan and Japan on April 10^th on fisheries. Taiwan fisherman are of course pleased because it clarifies their right in their traditional fishing grounds, but such an accord would not normally command any interest beyond the two countries concerned. But in this case it should. The matter is part of the nexus of issues that include territorial disputes over maritime land forms, the quest for natural resources, the rules of engagement of maritime vessels of contending countries, and coping with popular nationalism. The Japan-Taiwan agreement is important because it does not try to resolve all issues for all time but addresses the most pressing matters in a pragmatic and mutually beneficial way. It offers a way forward for other countries to reduce the temperature on their maritime disputes and reduce the risk of wider conflict through accident and miscalculation. As President Ma said, the pact “sets a good example of how the concerned parties can find ways to settle their dispute and preserve peace and stability in the region at the same time.” He may not have intended to allude in this remark to China, whose maritime vessels have been operating in a rather edgy way of late. But the shoe certainly fits.

Authors

Richard C. Bush III

How the China Development Bank is Rewriting the Rules of Finance: Debt, Oil and Influence

Thu, 18 Apr 2013 14:30:00 -0400

Event Information

April 18, 2013
2:30 PM - 4:00 PM EDT

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

The China Development Bank may be the most powerful financial institution in the world, argue Beijing-based Bloomberg News reporters Henry Sanderson and Michael Forsythe in their new book, China’s Superbank: Debt, Oil and Influence – How China Development Bank is Rewriting the Rules of Finance (Bloomberg Press, 2013). The China Development Bank has been the enabler of the government's policies both at home and abroad. It invented the system of local finance that helped China weather the global financial crisis and has financed the China-Africa Development Fund, bankrolled the global expansion of Chinese companies and extended tens of billions of dollars in energy-backed loans to borrowers around the globe, including Brazil, Russia and Venezuela.

On April 18, the John L. Thornton China Center at Brookings hosted a discussion on China’s Superbank with Forsythe and Sanderson. Brookings Fellow Erica Downs provided introductory remarks and moderated the discussion.

The Road Ahead for China’s Economy

Tue, 16 Apr 2013 09:00:00 -0400

Event Information

April 16, 2013
9:00 AM - 4:30 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

In recent years, China has increasingly confronted new challenges in economic policy, including rising labor costs, low household consumption, rapid urbanization and inefficient domestic investment. While it is now widely acknowledged in Beijing that major structural adjustments are needed to address these issues, implementing serious reforms pose major challenges for the newly installed leadership.

On April 16, the John L. Thornton China Center at Brookings and China’s Caixin Media Group hosted a conference to examine the daunting challenges confronting China’s new leaders. The morning panels featured a discussion of the financial sector as well as the relationship between the domestic agenda for financial reform and China’s evolving strategy for outbound investment. The afternoon panels took a close look at the political obstacles to implementing major economic reform in areas such as tax policy, the household registration system and land transfers, as well as explore the impact of environmental and natural resource constraints on China’s economic growth.

Audio

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20130416_china_economy

Soaring Reserves Put Renminbi Back in the Spotlight

Eswar Prasad and Karim Foda — Mon, 15 Apr 2013 12:26:00 -0400

Editor's Note: The following commentary originally appeared on the Financial Times website, and is based on data by the authors presented in the Financial Times' China Currency Tracker interactive feature.

View the China Currency Tracker at ft.com » (subscription required)

With China’s foreign exchange reserves soaring, the renminbi is back in the spotlight. Rising capital inflows have led to a surge in accumulation of reserves as China’s central bank tries to fend off pressures for the renminbi to appreciate. Further liberalization of capital outflows could help ease the pressure on the currency. Greater exchange rate flexibility remains in China’s interest and would also help pave the way for eventual convertibility of the renminbi.

Last year was a calm one for the renminbi. China’s trade and current account surpluses fell below 3 percent of GDP in 2012, suggesting that the economy was on its way to resolving its protracted external imbalances. Capital inflows eased off and capital outflows rose as the government liberalized controls on outflows. Net accumulation of foreign exchange reserves was just over $130 billion, compared to $330 billion in 2011 and an average of nearly $450 billion per year in the four years preceding that.

Pressures on the renminbi appeared to have become more balanced. In fact, for most of the year, the offshore non-deliverable forwards (NDF) market indicated expectations of mild renminbi depreciation relative to the U.S. dollar.

Pressures on the renminbi appeared to have become more balanced. In fact, for most of the year, the offshore non-deliverable forwards (NDF) market indicated expectations of mild renminbi depreciation relative to the U.S. dollar. In April 2012, the government increased the flexibility of the exchange rate, allowing the renminbi to rise or fall by 1 percent each day relative to the midpoint of the trading range determined by the People’s Bank of China (PBC). Soon after that, the renminbi briefly retreated in value against the dollar before returning to a slow pace of appreciation.

2013 could prove to be a more interesting year on the currency front. Capital inflows into China seem to have picked up due to a mix of pull and push factors. The economy’s short-term growth prospects seem solid, although Chinese equity markets have not performed well. The major advanced economies are likely to maintain protracted low interest rate and easy money policies, pushing capital out to China and other emerging markets.

The economy seems to have settled down to a pace of 7-8 percent GDP growth. Inflation appears under control, leaving room for a strong policy response to counter any slowdown in growth. There are many risks to this relatively benign scenario, including concerns about local government debt, the housing market, and financial system weaknesses.

Still, capital flows to China are likely to increase, particularly since the government has been easing restrictions on inflows. This will maintain appreciation pressures on the currency barring any major global financial turmoil—for instance from a flare-up of the euro zone debt crisis—that could pull capital back from emerging markets to the traditional safe haven currencies.

On a trade-weighted basis, the renminbi’s nominal effective exchange rate relative to its major trading partners has appreciated by 3 percent over the past twelve months. The inflation-adjusted real effective exchange rate has appreciated by 5 percent over this period--although China has maintained moderate inflation, many of its advanced economy trading partners have even lower inflation rates.

With the U.S. bilateral trade deficit with China hitting a new high of $314 billion in 2012 and U.S. job growth still at dismal levels, China’s currency policy could once again become a source of tension between the two countries.

Over the past twelve months (March 2012 to March 2013), the renminbi has appreciated relative to the currencies of virtually all of its major trading partners. In inflation-adjusted terms, the renminbi’s value has risen sharply against the yen--by nearly 18 percent. By this measure, the renminbi has also appreciated by 5.9 percent relative to the euro and 1.5 percent relative to the U.S. dollar. Measured relative to its recent low against the dollar in August 2012, the renminbi is now up by about 3 percent against the dollar.

The renminbi’s modest appreciation relative to the dollar suggests that the exchange rate is still being tightly managed by the PBC through its intervention in foreign exchange markets. Indeed, in the first quarter of 2013, China added $128 billion to its stockpile of reserves, pushing them to a level of $3.44 trillion.

With the U.S. bilateral trade deficit with China hitting a new high of $314 billion in 2012 and U.S. job growth still at dismal levels, China’s currency policy could once again become a source of tension between the two countries. This would not bode well for the bilateral economic relationship and could also raise global trade tensions, particularly as China and other emerging markets continue to feel victimized by aggressive monetary easing in the major advanced economies.

Continued liberalization of capital outflows will help take some of the pressure off from any increase in inflows. Still, there is a strong case for allowing more flexibility in China’s exchange rate. This would have many other domestic benefits as well. As China continues to open up its capital account, greater exchange rate flexibility will be important to make the process smoother and to facilitate the move towards free convertibility of the renminbi. It will also boost monetary and financial sector reforms.

Authors

Eswar Prasad
Karim Foda

Publication: Financial Times

Global Economic Recovery Stuck Below Takeoff Speed

Eswar Prasad and Karim Foda — Sun, 14 Apr 2013 12:17:00 -0400

Editor’s note: This commentary is based on research and analysis from the April 2013 update of Tracking Indexes for the Global Economic Recovery (TIGER) interactive map, which appears on the Financial Times Web site.

The global economic recovery remains stuck below takeoff speed, unable to achieve liftoff and facing the risk of stalling. Half-hearted fiscal austerity measures are proving to be a drag on growth and doing little to rebuild investor and consumer confidence.

Monetary policy continues to shoulder the burden of limiting downside risks and has kept financial markets buoyant even in the face of weak growth prospects.

The Brookings-FT Tiger index shows that growth momentum remains weak in nearly all major advanced and emerging market economies. The best that can be said about the weak pace of economic activity is that it has bottomed out in some key economies. However, prospects of a strong cyclical pickup in growth are likely to be hampered by continued policy uncertainty and concerns about further financial market turbulence, with the simmering euro zone debt crisis once again coming close to boiling over.

The US economy continues to be a relatively bright spot, with economic activity showing modest strength and equity markets booming. Consumer demand continues to prop up the weak recovery, although even that is tenuous as labor market performance remains weak. The Fed’s commitment to maintain easy monetary policy until the unemployment rate falls to 6.5 percent has boosted bond and equity markets. The Fed’s actions have also helped to limit downside risks to growth in the short term but at the cost of creating greater financial system risks. Fiscal policy, both directly and through the uncertainty about its future course, is hampering the recovery.

Growth in the core eurozone economies, including Germany and France, remains weak while the eurozone periphery remains mired in a danger zone.

Growth in the core eurozone economies, including Germany and France, remains weak while the eurozone periphery remains mired in a danger zone. The backstop provided by the ECB’s interventions bought some time for European policymakers, who have been squandering it with political squabbling. There has in fact been some progress on fiscal and structural reforms in countries such as Greece and Spain. However, in general the pace of reforms in the eurozone periphery economies has been far too slow. There are few grounds to anticipate improved growth momentum in these economies, which continue to post shrinking GDP levels. They also have dismal levels of business and consumer confidence, as well as financial systems that are still in distress and unable to provide much credit to finance a recovery. Moreover, recent developments such as the outcome of the Italian elections and the mishandled Cyprus bank rescue plan have raised the risks of an unpleasant end-game to the crisis.

The Bank of Japan’s new leadership has clearly signaled its intention to employ a broad and aggressive set of unconventional monetary policy measures to reverse deflation and support growth. For these measures to gain traction, they need to be supplemented by structural reform measures that are essential to revive the economy’s productivity and competitiveness. Bolstering Japan's productivity and long-term growth prospects requires reforms of the tax system, labor markets, and various aspects of the regulatory regime.

Emerging markets are treading water as their policy space becomes increasingly constrained and they continue to be buffeted by a weak external environment.

Emerging markets are treading water as their policy space becomes increasingly constrained and they continue to be buffeted by a weak external environment.

The outlook for China’s economy is evenly balanced, with some indicators such as industrial production suggesting that growth has stabilized. Inflation appears to have moderated, leaving room for policy stimulus if growth were to slow. The new leadership has hit the ground running in terms of laying out its economic reform agenda and making a series of statements and high-level appointments that bode well for reform prospects. The difficult task of developing specific action plans and implementing them lies ahead. Still, it seems clear that the government is prepared to accept lower growth than in the past decade so long as that growth is more sustainable and increasingly driven by private consumption and productive investment.

In India, the optimism engendered by a wave of modest but important reforms at the end of 2012 has given way to renewed gloom as the February 2013 budget did not sustain the reform momentum. The budget contained some steps to put public finances on a more sustainable path, but even the modest deficit reduction goals may be upended by weak growth. The large current account deficit remains a source of vulnerability and the high level of inflation has constrained monetary policy’s ability to support growth.

Latin American economies have hit a rough patch, with countries like Argentina and Brazil experiencing significant slowdowns. Even Mexico, one of the strongest performers in the region of late, is in danger of losing momentum as export growth has been hit hard by weak external demand.

Politicians around the world continue to avoid tough structural reforms, instead relying on central banks to continue propping up growth. Policy and political uncertainty remain sources of drag that could prevent the world economy from attaining liftoff, raising the risk of a crash.

Authors

Eswar Prasad
Karim Foda