Wars and rumours of wars

  • Business
  • Saturday, 27 Nov 2010

NORTH Korea's deadly artillery strike on South Korea's Yeonpyeong island earlier this week is a reminder that there are still forces in the world that could throw up an unpredictable risk to the global economic recovery.

Wars and rumours of wars be it in the economic, or organised military, sense are certainly very distressing, as such threats could wreck whatever economic forecasts or goals that we may have made, and further destabilise our social fabric.

Unfortunately, though, these threats have become an increasingly common phenomenon in the current century. According to conventional theorists, the rising competition among nations of the world for increasingly scarce resources and opportunities for social and economic development is one of the main factors contributing to this.

For instance, just a few months back, an economic conflict was seen intensifying, as several governments began to accuse one another of waging a trade and currency war.

Trade war, whereby governments increase restrictive trade barriers against one another, and currency war, whereby countries compete against one another to achieve relatively lower exchange rates for their currencies to gain export competitiveness, have become common since the world emerged from the economic crisis.

Such strategies are seen as desperate attempts by governments to promote and protect their domestic industries from external competition, but they could be detrimental to the overall global economic health. A silver lining has emerged, thankfully, as governments have been willing to get on the negotiating table to find solutions for a ceasefire for mutual benefit.

But the Korean conflict is different. Unquestionably, the surprising strike by North Korea has stirred up the anger and heightened the concern of many.

The conflict couldn't have happened at a worse time, when global markets have just started regaining some confidence after the resurgence of fears over the euro-zone debt crisis.

In addition, major economies in Asia-Pacific such as China and Hong Kong are already busy battling the rising risks of inflation and asset bubbles to sustain the health of their economies. Any destablising factor will only add to the headache of the region that's fast rising to become a global economic powerhouse.

The military threats on the Korean peninsula still persist, even though the exchange of fires between the North and South has stopped for now. This puts East Asia, the main centre of global growth, on high alert. It also adds international pressure on China, North Korea's last remaining ally, to exert its political and economic influence to maintain peace and stability in the region.

Economists say East Asia has too much at stake to have any political tension in the region.

But the fact is, underlying the region's encouraging growth, are indeed many potential for geopolitical conflicts. For instance, in September, China and Japan clashed after a boat collision off the disputed islands in East China Sea. Not to mention, the Spratly Islands, which six Asian countries, including Malaysia, lay claim to. (These islands are said to be sitting on huge deposits of oil and natural gas reserves.)

Some commentaries say the region has many unfinished businesses of this sort, particularly due to border dispute, to deal with. Such pressure has merely been concealed by its impressive growth story.

But conflicts will shake investor confidence, and sink trade and economic activities, bringing a blow to the region's growth story, economists explain. They argue that countries in the region have to actively engage in dialogues to promote regional cooperation and extinguish any potential risk of conflict before it even arises.

Stability in Asia is crucial to global well-being, especially at a time when the Western developed economies are still floundering.

In a special report released by Standard Chartered early this month, the bank's economists argued that the world has actually entered a new super-cycle phase.

A super-cycle, according to the report, is characterised by a period of historically high global growth, driven by increasing trade, especially among emerging markets; high rates of investment, urbanisation and technological innovation; as well as booming middle classes in the developing world.

The bank conservatively projected that global output would exceed US$300 trillion by 2030, compared with only US$62 trillion this year. It, however, did not imply that the road was going to be a smooth one, as the usual business cycle of boom and bust would still happen along the way.

Needless to say, much of the super-cycle growth will be driven mainly by dynamic Asian economies, especially China and India. With such potential, surely it's to every country's benefit that governments put in effort to not only suppress, but also to seek peaceful resolutions, to prevent the contagion of unwarranted aggressions.

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