HALF MOON BAY, Calif.--U.S. Fiscal cliff and debt ceiling; Europe's
economy; Middle Eastern winters or springs. These crises of the
moment are all well and good and keep us in racy headlines and
talk-show chatter, but where the rubber meets the road is in Asia.
And in the coming years, this region--so crucial to design- and
supply-chain health of the electronics industry--is heading toward a
cold war, according to Matt Gerken, a geopolitical analyst
and Ph.D candidate at the University of Texas.
"I don't think this is an overstatement," Gertken told an audience
of industry executives here Monday (Jan. 14) at the annual
Industry Strategy Symposium produced by the semiconductor production equipment trade group SEMI. "The Asian powder keg situation is not
getting ample attention." (See related story:
Electronics growth threatened by fiscal uncertainty, higher taxes).
The rise of China as a regional economic and military power is one
trigger, and this is causing strange new effects and bedfellows,
unimaginable just a few years ago, Gertken said.
"If you're Vietnamese, your grandfather was probably killed by an
American. Now Vietnamese people love Americans," he said.
"Philippines. Their grandfathers died at the hands of the Japanese.
Philippines and Japan and now having negotiations to sell each other
weapons, talking about defending against China. These are huge
changes in my opinion."
There are indications, Gertken said, that Japan is about to very
quickly alter course. Re-militarization is picking up steam, and recent elections perhaps foreshadow
more realistic fiscal and monetary policy.
"In Japan, we have reason to think that the geopolitical situation
has bottomed out," he said.
In addition, Japan's proven that it--like the United States--shifts
from long periods of introversion to periods of extroversion, and it
does so quickly.
"When Japan changes its mind, it moves very quickly," Gertken said,
recalling the Meiji Restoration in which Japan went from feudal to
modern society in a matter of years and "by 1905 had destroyed the
In China, a leadership change suggests continued focus and reform in
the short term beneficial to business, but longer term Gertken said
he sees a re-emergence of Communist party rhetoric in national affairs.
The new leadership group isn't composed of businessman or
soliders, Gertken said, adding "in other words, you're looking at
the rise in ideology in Communist Party orthodoxy."
"The real shift that's going on now in the medium to long term is
toward the Communist Youth League 's version of maintaining social
stability by redistributing wealth, not in reforming the
corporate sector," Gertken said, adding that means shifting economic
gains from the booming coastal areas of the country to pay for
infrastructure improvements in China's poorer interior. Gertken offered no direct warnings about the potential impact of
the evolving Asian geopolitical situation, although he did say
tensions--if they spiral out of control--could lead to maritime
disruption at some point, which likely would disrupt the electronics supply chain to some degree.
@Tom McHale: you raise many good points here. China's neighbors have been subjected to many decades of aggressive territorial expansions, assertions and claims in many instances with no basis whatsoever! The Aksai-chin occupation you refer to (with Indian border) has been a sour point between the two countries (the other being Tibet & Dalai Lama).
I do see some merit in what @Bert22306 says below -we may see a return to more authoritative communism to contain dissent. I think "Chinese spring?" may remain as "Chinese witer!" in long hibernation!
China? Not sure - there is really no fundamental change in the governing structure from the Imperial period. Still run by an oligarchy whose primary aim is keeping power by promoting members of their extended families into positions of power. It is a kleptocracy based on 'social stability' a euphemism and a well-learned lesson from millennia of growth and decay of the central power. As the central power declines the 'people' (it's a 'People's Republic' right?) lose respect and fear of the central government, stop paying their ruinous taxes and no longer support the repressive social hierarchy. This, unfortunately, does not result in true reform but rather destruction of the regime by outside forces. Han dynasties have been repeatedly overthrown by outside forces coming either from the southwest (Tibet), the northwest (Mongolia) or the northeast (Korea). The last of these was in the 1644 when the Ming dynasty was overthrown by invaders from Manchuria (oh, excuse me, the Glorious People's Northeast Provinces) resulting in the Quing dynasty that lasted into the early 20th Century.
The current power of China is based on the gun - and, since the '80s, industry that is entirely dependent on external markets and finance for its prosperity. China has no internal financial structure as the rule of law does not exist - there is no fundamental guarantee of the security of person or property - any person and their property can disappear if they offend the ruling oligarchy. Unfortunately, the world has come to believe the myth of Chinese power. When this collapses due to internal chaos or financial disruption the resulting chaos may well drag Asia into an extended period of war that will dwarf the first part of the Twentieth Century when the German Empire collapsed and gave birth to the Nazi/Soviet empires which, in turn, destroyed each other in the cataclysm we call War Two.
Last night I heard a pundit on BBC suggest that this Asian cold war will return China to more strict communism. This would be an interesting phenomenon, with I think not very good consequences to their growing economy.
Funny how when you think you can see a trend line forming, foreign policy can have a way of completely upsetting the applecart, eh?
Brian, lots to investors to consider. Several points to add that could impact the global economy - and the electronics industry: for Vietnam, after the American wars, there was a war with China. 1979. Short but nasty. Cold war could turn hot quickly as China seeks to enforce territorial claims in the South China Sea opposed by Vietnam, the Philippines, and by extension other ASEAN nations. China is also in the midst of a very tense stand off over several tiny, uninhabited islands at the edge of the continental shelf near Okinawa. Chinese and Japanese naval and air forces are already bumping into each other there. Last summer's mass protests in China disputing Japan's claims turned up to heat on both sides and has had a big economic on trade and investment. Finally, the boundary dispute with India that led to war in the 1960s remains unsolved.
Yes, I've been wondering about this too. China is making virtually all of their Asian neighbors edgy these days, and for better or for worse, these neighbors are looking to the US to help them from being overwhelmed.
It's a strange world we live in. For instance, look at Mali, and the UN Security Council, and how French intervention is being welcomed by most. Same sort of dynamic. The West needs to be extremely careful to avoid being suckered into all of these disputes long term. When we do, we always end up being the bad guys.
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