Israel issues alert after blast near embassy in India

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Police personnel conduct an inquiry after an alleged explosion occurred near the Israeli embassy in New Delhi on December 26, 2023Getty Images

Israel has upgraded its travel advisory for citizens in India after a low-intensity explosion near the country’s embassy in Delhi.

The blast took place on Tuesday evening in the capital’s Chanakyapuri diplomatic enclave.

Nobody was injured, but police said they recovered shrapnel from the spot. An investigation is under way.

Israel has asked its citizens to avoid crowded places like malls and markets, and skip large-scale events.

It added that “it is possible” the explosion was an “attack” and there was “a fear of a recurrence of the events”.

In a public message on Tuesday, the country’s National Security Headquarters (NSH) also warned Israelis staying in India – and Delhi in particular – to stay alert, avoid displaying “Israeli symbols” in public and not post their trip details or photos on social media channels.

Earlier this month, the NSH warned Israelis to reconsider all their travel abroad and called on those who do need to travel overseas to avoid outward displays of their Jewish identity amid the ongoing war in Gaza.

It began on 7 October after Hamas led a wave of deadly attacks on communities inside Israel. Some 1,200 people, mainly civilians, were killed. Gaza’s Hamas-run health ministry says least 20,915 Palestinians have been killed – mostly children and women – in more than 11 weeks of fighting.

The claims by the warring sides have not been independently verified.

Meanwhile, authorities in India said they had tightened security around the embassy and other Israeli establishments in Delhi.

In 2021, an explosion was reported outside the Israeli embassy in which cars were damaged. However, no deaths were reported in the incident.

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China’s new veil tech turns missiles into passenger planes

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Chinese researchers have recently unveiled a stealth camouflage veil that can disguise cruise missiles as passenger planes. Such technology could be helpful in a decapitation strike against Taiwan.

This month, the South China Morning Post reported that a gold-plated camouflage veil developed by China could change the face of war by making cruise missiles look like passenger planes on radar screens.

The SCMP notes that the technology could confuse expensive air defense systems and significantly reduce the time available for military commanders to respond.

The source notes that the technology was developed by a research team in northwestern China who published their work in the peer-reviewed Chinese Journal of Radio Science last month. It says the project is part of an ongoing effort by China to build up a wide range of ways to penetrate air defense systems in the First Island Chain, Guam, or even the US homeland.

The SCMP describes the veil as made of gold-plated fine metal threads that form a web of complex geometry to reflect radar signals. It notes that based on laboratory testing, it has been found that the device can significantly increase the radar cross-section of a flying target, making it comparable to that of a large airplane when viewed from specific angles.

The source says the US is already using radar reflectors on some of its missiles, such as the ADM-160 Miniature Air-Launched Decoy (MALD), to make them appear as airplanes on radar screens. It also says that stealth military planes, such as the F-22 fighter and B-2 bomber, also carry removable reflectors known as Luneburg lenses most of the time so they can become visible to civilian air traffic control and hide their actual radar signature.

The SCMP notes that the veil’s potential as a countermeasure in future warfare is hindered by the challenge of achieving uniform performance in mass production, which can only be done if the manufacturing process is automated.

Potential threat to Taiwan

In line with that, stealthy cruise missiles may enable a Chinese decapitation attack on Taiwan, with missile strikes eliminating Taiwan’s critical military and political leadership and infrastructure while swiftly moving forces across the Taiwan Strait to occupy the self-governing island before the US and its allies could muster a response.

In the 2014 book A Low-Visibility Force Multiplier: Assessing China’s Cruise Missile Ambitions, Dennis Gormley and other writers say that cruise missiles do not produce strong infrared signatures on launch, which could make them undetectable by space-based launch-detection satellites, thereby reducing the possibility of a counterstrike.

According to Gormley and other experts, cruise missiles’ ability to fly at very low altitudes, with small radar signatures and potentially supersonic speeds, can put pressure on air defense systems and radars, making it more likely for them to go undetected. They note that in conjunction with ballistic missiles, cruise missiles can saturate air defenses and hit their targets quickly.

Assessing the potential of a decapitation strike against Taiwan, Michael Lostumbo and other writers note in a 2016 RAND report that China could aim to destroy Taiwan’s air defenses with extensive missile strikes, targeting missile defense radars, missile launchers, crater runways, and destroy aircraft on the ground.

If such strikes succeed, Lostumbo et al note that such could enable further strikes by crewed aircraft such as bombers and fighters.

Given China’s missile threat, Lostumbo et al note that Taiwan could preserve its air defenses as a “force in being” that imposes costs while avoiding attrition, seeking highly favorable engagement circumstances where it could shoot down enemy aircraft with little risk of loss.

Stealth tech on the ground

Beyond disguising cruise missiles as passenger planes, China’s other stealth technology developments could erode Taiwan’s irregular-warfare capabilities should the former’s reunification attempts come to a protracted guerrilla war.

Nilanthan Niruthan says in a 2020 Columbia Journal of International Affairs article that insurgents who could easily conceal themselves defeated large armies such as the Soviet Army in Afghanistan or the US Army in Vietnam. Niruthan says stealth technology could make the richer, larger army the stealthier one, eliminating the only military advantage an insurgent army has.

Such a dynamic could play out after a successful Chinese invasion of Taiwan. In a December 2022 Modern War Institute article, Aidan Greer and Chris Bassler note that it is unlikely for the Taiwanese population to capitulate to China in the event of an invasion.

Greer and Bassler note that Taiwanese guerrillas would continue to wage irregular warfare from mountain and urban hideouts, employing a Fabian strategy, avoiding major force-on-force engagements while increasing the cost of occupation.

In conjunction with stealth technology, China could use other means to defeat a potential Taiwan insurgency, such as establishing intelligence superiority, eliminating civil-society institutions, and isolating insurgent bases of operations.

There are also significant implications should China’s stealth technology proliferate in the international arms trade and black markets.

Niruthan also says the proliferation of stealth technology might even lead to more proxy wars, as its very nature lends itself to plausible deniability.

Because of that, he notes that small states facing insurgencies backed by richer states could be in a lot of trouble, as insurgents could be supplied with advanced stealth technology by their backers, and even non-state actors could get stealth technologies on the illegal market.

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Time once again to make superhero of China economy

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The order is rapidly fadin’

And the first one now

Will later be last

For the times they are a-changin’.

– Bob Dylan

China’s economy is currently on the operating table, hunched over by surgeons, chest cavity splayed open, hooked up to a cardiopulmonary machine, surrounded by nurses staring at monitors flashing vital signs. It all looks rather grim.

This surgery, however, is not an emergency bypass. That would be too easy. China has had many of those already – stimulus packages, grand infrastructure projects and many rounds of directed lending.

Mad scientist. Image: Marvel Database

Every two decades or so, going all the way back to the founding of the PRC in 1949, the surgeons get ambitious. These guys are mad scientists attempting a comic book trope – to create the ultimate superhero.

They want to inject super serum, replace skeletal calcium with adamantium and dose the patient with gamma rays, giving China the powers of shazams out the wazoo.

Deng Xiaoping’s agricultural reforms, privatization and special economic zones of the early 1980s kicked off 20 years of market driven growth.

In the late 1990s, Premier Zhu Rongji performed surgery at least as invasive as what is currently being attempted. Zhu’s reforms broke the “iron rice bowl,” laying off 27 million workers from state owned enterprises. This paved the way for another 20 years of growth.

In the lamented “pre-reform” era, China’s mad scientists engineered spectacular growth by increasing investment from a prewar 6% of GDP to 20% in the first Five-Year Plan, covering 1952-1957. This led industrial output to register a compound annual growth rate.

The Great Leap Forward accelerated this growth to 66% in 1958 and 39% in 1959 before crashing and burning in 1961 when mismanagement of communal farms and “backyard blast furnaces” caught up with the mad scientists.

Course correction starting in 1962 recovered all lost ground by 1965. According to economist Cheng Chu-Yuan, China’s GDP growth averaged 11% between 1952 and 1966, the eve of the Cultural Revolution. (T. C. Liu of Cornell and K. C. Yeh of the Rand Corporation have a lower estimate: 8%.)

More importantly, China built a full kit of infrastructure, machinery and equipment capable of driving future industrialization.  

Mao Zedong threw a wrench into China’s economy during the Cultural Revolution (1966-1976). But through the chaos, as the mad scientists attempted to substitute ideological inputs for material ones, China was still able to achieve GDP growth averaging 5.2%.

Many analysts have a tabula rasa understanding of China’s reform era, as if there had been no economy before Deng Xiaoping. In reality, China’s industrialization started right after the formation of the PRC with some of the fastest growth recorded in the 1950’s and 1960’s. Even during the “low growth” Cultural Revolution, resources directed towards public health (for example, barefoot doctors) and primary education doubled life expectancy and quadrupled adult literacy by 1980 from pre-PRC levels. 

The mad scientists are now at it again. They have about twenty years of new data not just on China but from the rest of the world. When Zhu Rongji was head surgeon, history had ended and markets reigned supreme. This time around, the surgeons are correcting for market irrationality and negative externalities. The next twenty years is again being determined on the operating table.     

Three years ago, the surgeons pried open China’s chest cavity with the three red lines credit limits, instantly seizing the speculation driven property sector. Since then, they ripped out unnecessary organs like education companies, clamped the Ant Financial artery and eviscerated the video game industry.

All of this has caused spasms in vital signs from lackluster growth to rising youth unemployment. Wondering whether China will or will not stimulate the economy next quarter or next year is missing the forest from the trees. For the next few years, China’s economy will still be under the knife and whatever adjustments will merely be anesthesiologists and technicians nominally dialing the drugs up and down and adjusting the heart-lung machine to maintain vital signs.  

What are these mad scientists trying to achieve? We believe President Xi Jinping’s 2020 target of doubling China’s GDP by 2035 stands. That is an average growth rate of 4.7% for 15 years. But beyond just a numerical target, it is important to figure out what superpowers China is trying to acquire. And just as importantly, what Kryptonite factors China is attempting to inoculate itself against.

Image: Superhero Businessman Chinese Stock Market Concept

China wants America’s Silicon Valley, but regulated; Japan’s car companies, but electrified; Germany’s Mittelstand, but scalable; and Korea’s chaebol conglomerates, but without political capture. It wants to lead the world in science and technology, but without cram schools. A thriving economy, but with common prosperity. Industry, without air pollution. Digital lifestyle, without gaming addiction. Material plenty, without hedonism. Modernity, without its ills. This is, of course, a wish-list and unrealistically ambitious. But these mad scientists sure as hell are going to try. They’ve developed a taste for it.

In college, early into the semester, we went through a ritual called course exchange. Students gathered in an auditorium to swap classes after sampling lectures for three weeks – satisfaction was not guaranteed. The strategy passed down to underclassmen applied to both course exchange and significant others: “Add before you drop.”

China is undergoing – but perhaps botching – the same process with a more party-esque slogan, “Establish the new before abolishing the old.”

The surgeons have been on a tear gutting the old. The big kahuna is, of course, the property sector. But right behind are platform monopolies, private education, financial services and video games. The new has been playing catch-up, with 5G equipment, electric vehicles, photovoltaics and wind turbines being leading examples.

From all appearances, the Industrial Party is in ascendance and China will double down on climbing the manufacturing value chain. The Industrial Party is a political identity that believes industry, science and technology should determine China’s future. Adherents believe that China’s strength lie in the technical skills of her population and thus favor hard-science, high-tech industries as opposed to services and business model innovations. 

Therefore, Chinese politicians, whatever their predisposition, must find a way to create space for this next generation of scientists and technicians to develop themselves. They cannot be confined to a production line at a Foxconn plant. Maintaining social stability means finding a use for future scientists and technicians, which means pursuing industrialization. Is there any other way? The key variable for determining the course of China’s future development is thus the massive number of talented technical and scientific workers.

If mistakes were made, it would have been in sequencing and in faith – dropping before adding is a poor strategy in both love and course exchange. China’s mad scientists may have been too confident that electric vehicles and renewable energy would be followed quickly by semiconductors, pharmaceuticals and commercial aircraft.

Perhaps they have reason to be confident. Planning for this surgery has been in the works since 2015 with the Made in China 2025 project. China has been steadily eroding imports of high value added intermediary goods like batteries, precision parts and electrical components, flipping trade with South Korea from deficit to surplus.

This has caused much analyst hand wringing over the feasibility of sustained growth, given China’s economic imbalances. Surely countries like South Korea will not take this lying down. China, they say, accounts for 18% of global GDP but only 13% of consumption and a massive 32% of the world’s investment. Continued growth at 4.7% will surely swamp the world with manufactured goods as China’s imbalances, through trade, become an ever larger distortion of the global economy.  

This is erroneous. China never properly transitioned from its Soviet era Material Product System (MPS) of national accounts to the United Nation’s System of National Accounts (UNSNA) standard, leaving out much of services from reported GDP.

We calculate that China accounts for 22-24% of global GDP and 20-23% of global consumption. We also calculate that household consumption is 50-55% of China’s GDP, in line with global averages. China should easily be able to grow at 4.7% through 2035 with only a modest increase in consumption’s GDP share (5 percentage points over 10 years) without upsetting global economic balances.  

In the reform period prior to Xi, everything was sacrificed at the altar of economic growth. In the new era, growth has been walked down from 9.6% in 2011 to an average of 4.7% in the Covid years (2020-2023) as an increasing litany of issues were given precedence. Debt however, soared over this time from 175% of GDP to over 300%. What exactly did all that debt buy?

When Xi assumed leadership of China, he declared that inequality could not be allowed to increase further. Inequality is perhaps the major Kryptonite factor of the American economy which China wasted no time in matching as the economy roared with market reforms.

While still problematic, inequality, as measured by the Gini coefficient, has steadily fallen since 2010 largely as a result of massive investment in urbanization, pushing people into cities and pushing cities up the tiering ladder.

Today, it would not be strange to consider Chengdu, Chongqing and Hanzhou first-tier cities and peers of Beijing, Shanghai, Guangzhou and Shenzhen. Tier-two cities like Xiamen, Kunming and Suzhou are often considered more livable and trendy in their own quirky ways. Dark-horse cities like Hefei and Ningbo have exploded out of nowhere to become rising tier-two stars. With the installation of high speed rail, tier-three cities like Dali, Lishui and Zibo compete to become the next “it” tourist destination.

China also poured resources into stamping out last-mile poverty. While most poverty alleviation in China was through economic growth, recalcitrant extremely poverty could only be eradicated by concentrated marshaling of resources, from relocating entire villages to weekly visits by social workers.   

In 2015, journalist Chai Jing produced the documentary Under the Dome and released it online. The documentary, in the style of Al Gore’s Inconvenient Truth, was a polemic against China’s ghastly air pollution. The impact was seismic. Fortunately for the rest of China, Beijing’s geography, a basin surrounded by mountains, is notorious for trapping smog. Out of sight, out of mind was never going to work – senior leadership got to enjoy some of the most polluted air in China.

Since peaking in 2012, air pollution in Beijing has been cut by over 60%, with Shanghai falling over 50%. China, which used to dominate the list of most polluted cities, now only claims one spot in the top 20. None of this came cheap, from installing scrubbers in smoke stacks to increasing renewables to moving heavy industry to strict emissions regulations for cars.

During the Great Leap Forward and Cultural Revolution, economic planners theorized that ideological fervor could substitute for material inputs like labor and capital. It worked better in theory. In recent decades, as ideology took a back seat to economic growth, long-brewing problems became existential.

Before Hu Jintao handed the reins to Xi, Hu warned delegates to the 18th Party Congress in 2012 that “[corruption] could prove fatal to the party… and [cause] the fall of the state.” The popular opinion in the West is that Xi ended China’s highly successful reform era because of an ideological bent. This is off the mark. Xi was brought in to clean house as the wheels were coming off from excesses of the reform era.

Throughout Xi’s decade in office, there has been no letup in his anti-corruption campaign. In 2022, a record 638,000 officials were punished for corruption. While there haven’t been any large scale ideological appeals to the public, it’s a different story within the 98-million-member party.

During this time, free market capitalism and liberal democracies also faced their own existential tests. Success or failure going forward will depend on whether liberal institutions remain intact in the West and whether party discipline can be maintained in China.

What the PRC has had since 1949 is a governing party with the political autonomy to play mad scientist. In comic book world, whenever mad scientists try to create the ultimate superhero, things tend to go awry. Deadpool isn’t exactly what his creators had in mind. Serpentor turned out to be a bust. The only success, which we attribute to wartime propaganda, appears to the be Captain America.

Of course we live in the real world, not a comic-book world. The question in the real world has always been whether the economy can be engineered by mad scientists from the top down or is it best left to the invisible hand of the market? The conventional wisdom on this has been problematic.

The standard economic opinion – against all evidence – is that China was economically stagnant before Deng’s market reforms. The thinking on this for the American economys is undergoing a transformation in egghead land – just how has neoliberal economics benefitted the American people over the past few decades?

In a Q&A exchange at a conference in Malaysia, Eric Li, the barbed-tongued venture capitalist, was asked, “Do you think top-down directives are sustainable in the long run?”

To which he replied, “It’s the only thing that’s sustainable.… That’s why America is failing today.” After World War II, Li said, the Americans “lost the ability to do top-down design.”

‘Han Feizi’ is a Beijing-based financial industry veteran.

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East Asia rolling the die on new-age industrial policies

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Since the World Bank published “The East Asian Miracle“ report in 1993, a myriad of studies debating the merits of industrial policy have appeared.

Proponents argue that the success of Hong Kong, South Korea, Singapore and Taiwan was due to selective industrial policies, including trade and protection policy, capital controls and labor market restrictions. 

Critics argue that the impressive growth of the East Asian “tigers” was, on the contrary, the result of economically orthodox strategies such as stable macroeconomic management, non-discriminatory and incentive-based export promotion measures, exchange rate stability and commitment to human capital formation.

Now, three decades later, industrial policy seems to have made a comeback. In Indonesia, where slow industrial growth is a concern, President Joko Widodo is promoting an activist industrial policy by pursuing “downstreaming.” 

He has banned exports of nickel ore to encourage domestic processing and, motivated by a significant increase in the exports of processed nickel, has extended the strategy to bauxite and other minerals as well as resource commodities such as crude palm oil and seaweed.

This strategy is a touchstone of Indonesia’s new 2025–45 National Long-Term Development Plan.

Minister of Industry Agus Kartasasmita (far left) together with Coordinating Minister for the Economy Airlangga Hartarto (second left) and President Joko Widodo (third left) during a visit to the PT Obsidian Stainless Steel (OSS) production line, during a series of events for the inauguration of the China-invested nickel smelter factory PT Gunbuster Nickel Industry (GNI) in Konawe, Southeast Sulawesi, in a file photo. Image: Twitter / Doc Palace / Agus Suparto

In Malaysia, the New Industrial Master Plan 2030 aims to build more competitive industries and “advance economic complexity,” and South Korea and Japan have also tailored their industrial policy to foster their semiconductor industries to compete with China and the United States.

In the past, industrial policies were largely domestically oriented, subsidizing the expansion of certain sectors over others. As countries engaged more in international trade, policies were used to affect cross-border flows of goods and services. Industrial and trade policies do not operate in isolation.

Recent industrial policies for commercial purposes take many forms, as opposed to the blunt import tariffs commonly used in the past. The most prominently used strategies at the global level are trade financing, state loans, financial grants, financial assistance to expand foreign markets, local sourcing, loan guarantees and import tariffs. 

In countries such as Indonesia, Vietnam, Thailand, Malaysia and China, frequently used industrial policies include capital injection and equity stakes, anti-dumping measures, tax or social insurance relief, state loans and financial grants.

There are several reasons for the resurgence of industrial policy. Economic shocks such as the Global Financial Crisis and the Covid-19 pandemic have increased the appetite for government intervention. 

Recent US legislation addressing inflation, semiconductor supply chains and employment is a significant driver of industrial policy. This is also the case with the EU’s Green Deal Industrial Plan and the Made in China 2025 initiative. Such an embrace of industrial policy by major economic powers has motivated other countries to follow suit.

At the same time, the global trading system has become more fragmented and the WTO has weakened. Member countries have introduced trade measures that do not legally comply with WTO regulations.

Policymakers’ misreading of history has also repopularised industrial policy. The false belief that richer countries were successful because they protected manufacturing gave respectability to arguments favoring industrial policy. Industrial policy is also tied up in political agendas. 

In Indonesia, for example, industrial policy is often linked with nationalism and self-sufficiency, objectives which have roots in the country’s colonial history. In this regard, Indonesian industrial policy in the form of trade protection is easier, more expedient and politically popular.

Most industrial policies implemented in East Asia are designed to increase domestic value added. At the same time, governments want to establish vertical integration in the global value chain. These two objectives are contradictory – global value chains involve the slicing up of production processes across borders, which thins out the domestic value added in each process.

The emphasis on the share of domestic value added in exports as a policy criterion is misguided. First, production for export markets requires high-quality inputs procured in the world market to maintain competitiveness. Second, total export earnings are driven by volume rather than per unit of value added. 

Third, intermediate production is typically capital intensive, while final assembly is labor intensive, so shifting domestic production towards the latter would generate better jobs in countries like Indonesia.

Finally, in the case of resource-rich countries, most major producers export large amounts offshore for processing as the domestic demand and processing capacity are far smaller.

There are areas in which industrial policy is justifiable. One is in response to climate change. As environmental problems involve externalities, it is likely that state interventions in this area will increase.

The challenge is how to disentangle the objective of mitigating climate externalities from the protection of domestic industries from foreign competition. The semiconductor and electric vehicle battery industries are examples of this.

As in other parts of the world, it seems that the use of industrial policy in East Asia will remain a factor, if not an increasing issue. This is not necessarily a bad thing.

To ensure that the policy is not simply about picking winners, but enhancing the productivity of the overall economy, it should prioritize measures with the least distortion – incentives instead of targets and export taxes instead of export bans.

Workers monitor a nickel smelter in Indonesia, March 30, 2023. Image: Twitter Screengrab

Complementary policies are also needed. These include labor market, bureaucratic and regulatory reforms. Governments should focus on domestic issues and seek the most appropriate solution, not just copy others.

They should also note that many countries have become advanced or are fast developing largely due to globalization, while many past industrial policies have failed.

East Asia and countries like Indonesia and Malaysia need to find the right balance of industrial and trade policies so they do not lose out on the benefits of participating in global trade. 

Policymakers should not forget past failures of industrial policy, exemplified by Malaysia’s and Indonesia’s unsuccessful transition from Japanese and Korean automobile components to domestically produced parts or the government-funded Nihon Aircraft Manufacturing Corporation’s failed attempt to commercialize an economically viable domestic civilian airliner in Japan.

Arianto A Patunru is a member of the ANU Indonesia Project and a Fellow at the Arndt-Corden Department of Economics, Crawford School of Public Policy, The Australian National University.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Red Sea attacks threaten to widen the Gaza war

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The US is reportedly considering strikes against Houthi rebels in Yemen that have been menacing commercial ships in the Red Sea since the conflict began in Gaza. The Pentagon has a range of options for missile attacks on Houthi positions and has moved the Dwight D. Eisenhower carrier strike group into position off the coast of Yemen.

Since November 2023, the Iran-backed Houthis have conducted several attacks on commercial shipping in the Red Sea. Their attacks have increased navigation risks in the region and affected risk perception in the maritime sector. The economic and geopolitical implications are felt much beyond the coast of Yemen.

The world economy is strongly dependent on the global maritime supply chain. About 80% of international trade by volume is transported by sea. This figure rises to 95% for the UK. From mobile phones to clothes and from coffee to sugar, the manufactured items we use and the food we consume on a daily basis have been, at least in part, transported by sea.

Supply chain vulnerabilities

It does not take much to disrupt the global maritime supply chain. For instance, a simple accident that blocked the Suez Canal for six days in 2021 or the shortage of labor in Chinese ports during the Covid pandemic have been enough to negatively affect maritime supply chains and the global economy.

Intentional disruptions of the maritime supply chain by pirates or terrorists pose a challenge that goes beyond simple logistics.

Attacks on civilian shipping directly affect insurance premiums and deter operators from transiting through certain areas for financial and security reasons. The private maritime sector is not immune to geopolitics, and higher insurance premiums or the cost of rerouting ships eventually trickle down to consumers.

Piracy is a for-profit criminal activity that has disrupted maritime trade for decades, especially in eastern and western Africa. States have devoted substantial resources to deter and combat pirates, both at sea (for example deploying a naval task force to patrol shipping lanes) and on land to address the underlying socioeconomic causes of piracy.

Politically motivated groups, including terrorist organizations, pose a different type of threat. Their primary objective is not to make money but to increase the visibility of their organization, or to exercise leverage on other political actors at the regional or global level.

This is achieved by conducting attacks that increase risk and risk perception in a given area, disrupt maritime supply chains, and have disproportionate impacts on the geopolitical situation.

The Houthis are politically motivated. Their attacks aim to have an impact on the war in Gaza. Their location along a major sea lane of communication in the Red Sea gives them an asymmetrical advantage when it comes to attacking commercial shipping.

Yemen’s Houthi loyalists chant slogans during a tribal gathering in Sana’a on February 20, 2020. Photo: Asia Times Files / AFP / Mohammed Hamoud / NurPhoto

Major shipping companies and operators, from Maersk to BP, have paused operations in the Red Sea. Oil prices are expected to rise. Consequently, Houthis’ attacks affect commerce and the economy much beyond the Red Sea. But options to address the threat are limited.

Politically motivated groups are more difficult to deter than pirates because they are often willing to die for their cause. They are not looking for a ransom or bounty, but are trying to destroy or damage ships and disrupt shipping, so deploying vessel protection detachments or private security companies personnel onboard will have minimal or no effect.

Military response

Failing to deter Houthis from attacking commercial shipping, the second-best option is to increase naval presence to patrol the Red Sea. But this is not without political risks, since a further militarization of the crisis might be used by the Houthis and others to inflame the geopolitical situation in Yemen and in the whole region.

As part of what it has called “Operation Prosperity Guardian”, the US has assembled an international naval task force – including UK naval assets – which will have capabilities to intercept missiles and defend commercial shipping in case of an attack.

But, with a limited number of warships to patrol a large area and with early warning time for missile attacks limited due to the proximity of Yemen, it will be difficult to successfully defend against absolutely all attacks and prevent any damage from occurring.

That said, the symbolic value of such a task force is important. The task force’s success will be evaluated based on its ability in the short-term to add to existing mechanisms to reassure insurers, operators and global markets that the route is safe enough for shipping operations, without risking military escalation in an extremely turbulent region.

Basil Germond, Professor of International Security, Department of Politics, Philosophy and Religion, Lancaster University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Houthi shipping attacks threaten global economy

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To understand the implications for international shipping of the Yemen-based Houthi militant attacks in the Red Sea, it may be useful to start thousands of kilometers away, in the Port of Singapore. One of the busiest container shipping ports in the world, Singapore is a regular stop for all of the world’s leading shipping companies and a key hub for Asia-Europe trade.

Now, let’s imagine a major container ship sailing the 17,000 kilometers from Singapore to Rotterdam. After exiting the port, it heads for its first major choke point, the Malacca Strait. Once through that vital waterway, it finds open seas, traversing the Indian Ocean and the Arabian Sea.

As it approaches the coast of Yemen, it faces the Bab Al Mandeb Strait, another key chokepoint, before it enters the Red Sea onward to the Suez Canal.

If everything goes according to plan – and it usually does – the container ship passes through the Suez and will find itself sailing the Mediterranean headed for the Gibraltar Strait, another key choke point, between Morocco and Spain. Then, it will be on an Atlantic Ocean run north to the key Dutch port that is a major hub of northern Europe.

Everything is timed, synchronized, planned, and mapped for smooth sailings. After all, the global economy – and the bottom line of the shipping company – depends on it. Roughly 80-90% of world trade by volume is shipped by sea, according to the UN. 

So, when something goes wrong in any part of that journey, it’s not just individual ships or shipping companies that feel the pain. We all do.

The recent attacks by the Houthi militants on international shipping in the Red Sea has scrambled supply chains, pushed up oil and natural gas prices, and raised geopolitical tensions far beyond the states surrounding the Red Sea.

Some of the world’s largest shipping companies – MSC, Maersk, CMA CGM Group, and Hapag-Lloyd – have suspended their sailings in the Red Sea. Energy giant BP has also declared it will avoid the Red Sea until further notice.

The implications for world trade are serious. Roughly 15% of global trade and 30% of container traffic passes through the Suez Canal. The Red Sea and the Suez Canal are vital links in the global economy, playing a pivotal role in the global supply chain of oil, natural gas, food, manufactured products and more.

Some 40% of Asia-Europe trade passes through the Suez Canal, including vital liquid natural gas supplies. In 2021, when a ship became lodged across the canal, blocking it completely, economists estimated that some US$10 billion of trade was affected for each day the waterway was blocked.

The US military has announced an international coalition to protect Red Sea shipping lanes and provide security for the some 400 ships that are traversing the Red Sea at any given time.

The US plan has not entirely soothed insurers, who have raised prices on Red Sea passages and expanded the areas considered high-risk. Prospects of US strikes against the Houthi militants, which are backed by Iran, have been raised. Oil prices are inching upward after several weeks of decline.

The Houthis, which control parts of north and west Yemen, have declared their attacks are in response to Israel’s war in Gaza and that they are targeting ships linked to Israel or using Israeli ports. Most of America’s regional allies have been cautious about joining the coalition.

Across the Arab world, even in capitals where the Houthis are seen as a serious threat to regional stability, aligning with the US at a time of rising public anger over the Israel-Gaza war has made several countries uncomfortable. As a result, the US may be required to lead this operation without a large Middle East contingent to its coalition.

Meanwhile, the role of China will also be closely watched. Chinese shippers regularly traverse the Red Sea. China is also the only major purchaser of Iranian crude oil, giving it a degree of leverage over Tehran.

Iran’s links with Houthi militants are clear, but it remains to be seen if Beijing will seek to exert pressure on Tehran to rein in the Houthi attacks – or, at least, to keep them targeted at non-Chinese vessels.

Egypt, too, should be watched. The country faces an economic quandary. The Suez Canal Authority reported a record $9.4 billion generated in the 2022-2023 financial year.

A serious dent in those revenues would further squeeze an Egyptian economy that is already reeling from a foreign exchange crunch and soaring inflation. Concerns mount that Egypt could default on its roughly $165 billion of foreign debt, one of the highest levels in emerging markets. 

Meanwhile, some 100 container ships are actively avoiding the Red Sea route, according to logistics giant Kuehne+Nagel, and many more are likely to follow. The Singapore-Rotterdam route will now sail all the way around the coast of southern Africa and back up toward the Atlantic Ocean and Europe, adding weeks and rising costs to the journey.

At a time of precarious recovery in the global economy and razor-sharp geopolitical tensions, the Red Sea attacks are a reminder of how connected we are – and how dangerous it can be when those vital connections are severed.

Afshin Molavi is a senior fellow at the Foreign Policy Institute of the Johns Hopkins School of Advanced International Studies and editor and founder of the Emerging World newsletter. Twitter: @AfshinMolavi

Republished with the kind permission of Syndication Bureau, which holds copyright.                                                   

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Hidden dangers of antisemitism and the free speech debate

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Jewish history is full of cautionary examples of failed emancipation. For millennia, Jews have often been perceived as the “other” in their host societies, a status that continues to this day despite appearances to the contrary in some countries.

While the past century has witnessed various efforts to achieve civil and political rights for Jews, including religious initiatives like Reform Judaism and political movements like Zionism, these have not fully addressed the underlying issues.

Following the Holocaust, Zionism succeeded in establishing the state of Israel, but it did not resolve the fundamental issue of Jewish emancipation. That’s because the state is not secure or, in many ways, viable.

Israel’s lack of internationally recognized borders and its ongoing inability or unwillingness to establish a lasting peace with the indigenous Palestinian population have exacerbated the idea that the country is not secure.

Rather than mitigating these challenges, Israel has spent substantial resources to build a vast military occupation to control virtually every facet of the lives of Palestinians. The resources required for this herculean task of domination largely come from abroad in the form of military aid and diplomatic cover from the United States. 

The dependence of a secular Jewish state on a predominantly Christian nation like the US is cause for concern, given the historical hostility between Christian societies and Jews. This stands in contrast to the narrative pushed by Israel’s current public relations campaigns, which don’t dwell on that dark history but instead argue that it is Muslims that have exhibited more hostility toward Jews.

Throughout history, numerous Christian societies have exercised animosity toward Jews, on a scale far greater than their Muslim counterparts. Hostility, demonization, subjugation, and violence blighted the history of Jewish populations in Europe.

While the US is not a religious state, it is a majority Christian country that has witnessed a hard rightward shift in politics, marked by extreme anti-immigrant rhetoric in recent years. It seems inevitable that a savvy populist American politician will eventually raise questions about the loyalty of American Jews and the nature of the US’s special relationship with Israel.

In fact, former president Donald Trump has already made such insinuations through comments about American Jews and his remarks calling Nazi marchers in Charlottesville “very fine people.” This is deeply disturbing but unsurprising from the perspective of Jewish history, which is marked with many episodes of such shifts. 

The recent uproar surrounding how American universities address antisemitism in the wake of Hamas’s October 7 attack could mark another turning point. The focus is on how institutions like Harvard and the University of Pennsylvania handle the increasingly heated debate over Israel and Palestine.

Last month, the presidents of these universities were called before Congress to address these issues, leading to a hearing reminiscent of the McCarthy era. Republican members of Congress grilled these university leaders over the use of the phrase “From the river to the sea, Palestine will be free” by pro-Palestine activists.

This phrase, used by Palestinians for decades, calls for their freedom and equality from the Mediterranean Sea to the Jordan River. However, the Israeli government and pro-Israel activists argue that it is a veiled call for the elimination of Israel and the Jewish presence in the Middle East.

They tend to overlook the fact that Israeli settlers have also employed a similar phrase in their propaganda, and Israeli textbooks have frequently omitted any reference to Palestine on their maps. In 2013, the Guardian reported that 76% of maps used to educate Israeli children did not delineate boundaries between Palestinian territories and Israel, with Palestinian areas left unlabeled.

During the congressional hearing, a Republican lawmaker, who has previously advocated for the removal of “woke agenda” from American universities, questioned Harvard’s president, Claudine Gay, about whether “calling for the genocide of Jews violates Harvard’s rules on bullying and harassment.” 

Gay responded that it depends on the context, which the New Yorker notes was the correct response since “any responsible determination of a policy violation is context-dependent.” After the hearing, the president of the University of Pennsylvania lost her job, and a new chapter in the debate about American freedom of speech began. 

The Israel-Palestine debate has now become a platform to discuss broader free speech issues in the US. While such discussions can facilitate real change, they are cause for concern in this case because the intellectual foundations of the debate seem weak. For instance, using a chant to advocate for Palestinian rights is not equivalent to advocating genocide, and attempts to link the two often rely on outdated PR talking points from Israel.

The more significant concern lies in how this debate could further fuel discontent among a growing number of Americans regarding the influence of Israeli politics on US discourse. Given the numerous pressing issues facing the average American, Israel’s treatment of Palestinians and its international public relations may not be at the forefront.

American politicians are able to see this opening for their campaigns. Donald Trump is the most obvious example, but others are bound to follow. Ironically, pro-Israel activists driven by a desire to fight antisemitism might well be flaming its fires through the blind adoption of Israeli talking points.

If history serves as a guide, there may be consequences for this perceived overreach, which would almost certainly be unfavorable for the Jews.

Joseph Dana is a writer based in South Africa and the Middle East. He has reported from Jerusalem, Ramallah, Cairo, Istanbul, and Abu Dhabi. He was formerly editor-in-chief of emerge85, a media project based in Abu Dhabi exploring change in emerging markets. Twitter: @ibnezra

Republished with the permission of Syndication Bureau, which holds copyright

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China will stress test Asia as rarely before in 2024

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Today’s extreme focus on the Bank of Japan is pivoting to how the People’s Bank of China plays the economic minefield that lies ahead in 2024.

Over the next 12 months, China will stress test Asian economies as rarely before. Beijing’s dueling priorities of stabilizing growth and reducing the frequency of boom/bust cycles will center on the actions of Governor Pan Gongsheng at PBOC headquarters.

Since taking the PBOC’s reins in July, Pan has been a study in monetary restraint. Even as the all-important property sector stumbles, Pan’s team has avoided channeling giant waves of liquidity into the market. Targeted blasts, yes. But Team Pan is foregoing the powerful easing moves that traders came to expect from previous PBOC leaders.

One reason is that the yuan is under growing pressure in global markets. Nothing would get China closer to this year’s 5% growth target faster than a lower exchange rate. Pan, though, is prioritizing yuan stability over stimulus in ways that continue to confound hedge funds betting on a weaker currency.

This patience is partly about China’s default-plagued property developers. Each drop in the yuan makes paying off offshore debt more expensive and challenging. It’s also about the PBOC’s determination not to reward bad behavior through moral hazard-encouraging bailouts.

Yet this balancing act may become more precarious as China’s domestic economy underperforms at the same time the external sector disappoints.

People’s Bank of China Governor Pan Gongsheng is speaking forthrightly about the Chinese economy. Image: Twitter Screengrab

This isn’t the only way China will stress test Asia’s economies. Writing in the latest Global Polarity Monitor newsletter, Asia Times’ David Goldman argues that China will engage in “limited, stylized probes of Asian governments’ pain threshold” in naval and military matters.

Questions about the region’s economic pain threshold vis-a-vis China’s slowdown loom large as 2024 approaches.

Though the US has beaten the odds and avoided a recession, this luck might be running out. The cumulative effects of 11 US Federal Reserve rate hikes in 18 months – and the highest Treasury debt yields in 17 years – are generating intensifying headwinds. Europe is facing a treacherous 2024 as the German economy contracts.

“The fiscal woes of the last month have clearly left their mark on the German economy, with the country’s most prominent leading indicator showing just how difficult it will be for the economy to bounce back,” says ING Bank economist Carsten Brzeski.

Japan, meanwhile, may already be in recession. Data since the economy’s 2.9% contraction in the July-September period offers little hope Japan isn’t ending 2024 in the red. The sense of fragility was buttressed by the Bank of Japan’s decision on Tuesday (December 19) to leave quantitative easing in place.

Following the no-action on rates announcement, BOJ Governor Kazuo Ueda said it would be “inappropriate to think that we will rush to change our policy because the Fed is likely to move within the next three to six months.” That, he added, means the BOJ will “observe the situation for a little longer.”

To economist Krishna Guha at Evercore ISI, this means the BOJ will “methodically” prepare the ground for a first hike to exit negative rates rather than shock markets with a surprise exit, perhaps by April.

Yet that might depend more on how China fares in the months ahead than any other variable. As China’s economy loses altitude, “the case for early [BOJ] normalization is in jeopardy,” says Carlos Casanova, senior economist at Union Bancaire Privée.

As of now, the “conditions for [a] BOJ to pivot” away from QE “have not yet been met,” Casanova says. The first condition, he adds, is for 10-year Japanese government bond (JGB) yields to be at or slightly above the “new upper bound” of 1.0%. The second is for inflation to remain above the BOJ’s 2.0% target for an extended period. Both conditions remain uncertain.

Here, the BOJ isn’t operating in a vacuum. Economist Louis Gave at Gavekal Dragonomics notes that “assuming that the Fed is sounding dovish more for political reasons than any genuine concerns, the next few months should see a weaker US dollar.”

If, at the same time, Gave says, the “Bank of Japan eventually abandons its negative interest rate policies and China’s stimulus attempts start to gain a modicum of traction – and the People’s Bank of China has ramped up liquidity injections of late – we could end up with a setup that is bearish for long-dated bonds across OECD countries. Most, but especially, in the US.”

Among these central banking powers, the PBOC is a real wildcard in 2024. Odds are the BOJ will be forced to “taper” a bit in the months ahead, says Kelvin Wong, senior market analyst at OANDA. “It seems that mounting pressure from the public and private sectors has arisen.”

The Bank of Japan has a close eye on China’s economy. Photo: Asia Times Files / AFP / Xie Zhengyi / Imaginechina

Wong notes that prominent Japan business lobby Keidanren head Masakazu Tokura is urging the BOJ to “normalize monetary policy as early as possible.” Intriguingly, Economy Minister Shindo attended the BOJ’s December 19 meeting as a representative from the Cabinet Office.

“It’s rare,” Wong says, “for a Cabinet minister to attend BOJ monetary policy meetings as such ‘attendee roles’ are usually assigned to deputy ministers. In the past meetings that cabinet ministers attended had resulted in major monetary policy changes such as the launch of the mega quantitative asset-buying program in April 2013.”

Headwinds from China are among the forces complicating BOJ rate decisions.

The same goes for Bank of Korea officials in Seoul. Sputtering mainland demand has caused an about-face in South Korean exports. In recent months, the BOK cited weak global demand, led by China’s slowdown, as depressing demand for tech goods, undermining the country’s outbound shipments.

Taking a longer-term perspective, economists are mulling what China’s downshift means for the region.

“The Chinese economy has grown at an unprecedented pace since the 1980s, gaining importance globally, particularly after the country joined the World Trade Organization in 2001,” notes economist Sewon Hur at the Federal Reserve Bank of Dallas.

However, Hur notes, “the pace of growth is likely to slow as China’s economy matures because of its demographic structure and its increasing proximity to economic and technological frontiers.”

Additionally, Hur argues, “China may face more significant headwinds than would be typically expected. Notably, the country’s growth in total factor productivity — the efficiency of production — the largest contributor to China’s growth, has steadily declined since 2000. This trend is projected to continue over the next decade and beyond.”

As Chinese President Xi Jinping and Premier Li Qiang get a handle on the economy’s troubles, Southeast Asia might come into its own as a regional growth engine, argues Eunice Tan, a credit analyst at S&P Global Ratings.

“This shift could constrain the medium-term upside for China’s issuers while improving those of issuers in India, Vietnam, the Philippines and Indonesia,” Tan says.

S&P projects that China’s gross domestic product will slow to 4.6% by 2026 after growing at a 4.8% pace in 2025. By comparison, S&P sees India growing 7.0% by 2026, while Vietnam grows 6.8%, the Philippines expands 6.4% and Indonesia accelerates at a roughly 5% pace.

“Despite stimulus,” Tan says, “China’s property sector remains stressed. Constrained access to credit support and high corporate debt leverage are denting liquidity profiles, particularly of property developers and heavily indebted local government financing vehicles.”

At the same time, Tan adds, “we expect regional interest rates to likely stay high, given the US Federal Reserve will maintain a tight monetary policy to bring inflation within target. Our base case sees the US and Europe avoiding a recession in 2024, but the risk of a hard landing remains, which could affect Asia-Pacific’s exports to these regions.”

A porter walks on a bridge in Chongqing, China with new residential buildings in the background.
Photo: CNBC Screengrab / Zhang Peng / LightRocket / Getty Images

Making matters worse, China’s stumble could generate any number of downside surprises in the year ahead. The problem is that the government still hasn’t “addressed the most important issue: credit risk related to developers,” analysts at Macquarie Bank write in a report.

“Without a lender of last resort, a self-fulfilled confidence crisis could easily happen as falling sales and rising default risks reinforce each other,” Macquarie argues. “Indeed, some large developers have recently seen their credit risks rising rapidly.”

Economists at Nomura add that “China’s property sector has yet to bottom out. Markets appear to have been a bit too optimistic about the property stimulus policies over the past two months.”

If there’s any good news in the short run, write economists at Citigroup, Beijing’s “continued emphasis on supporting real estate financing and local government financing vehicle (LGFV) debt resolution will continue [to help] prevent risks [from] escalating.”

Citi analysts note that “as fragile growth continues to call for an accommodative monetary environment” by the PBOC, “more supports are still needed to boost private sentiment.”

Last month, Moody’s threatened to cut China’s credit rating, highlighting concerns over the slow pace and cost of bailing out highly indebted local governments and state firms slammed by the property crisis.

The specter of an actual downgrade of the second-biggest economy only adds to the ways China will stress test Asia in the year ahead.

Follow William Pesek on X, formerly Twitter, at @WilliamPesek

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