The Edge Singapore July 19, 2004
Big Money: Troubled waters ahead
By B K Tan
If, like US intelligence (or any other intelligence services), you'd been lurking around Internet chat rooms and forums, you'd think there's a big hostile confrontation coming up. Armchair warriors, paranoid conspiracy theorists, couch potatoes and the normally inquisitive (like the media) will tell you there are, at this very moment, seven US aircraft carrier strike groups (CSGs) out in the open seas. It's the largest armada ever launched since the Vietnam War. The naval exercise is called Summer Pulse 2004 and will last till next month.
However given the present China-versus-Taiwan spat over arms sales and the prospect of hundreds of ships churning around each other in the waters off China's coast, do not be surprised if the financial and stock markets swoon as the parties move to the edge of testing each other's mettle.
A CSG at sea is a sight to behold. There's the mother ship, an aircraft carrier with enough conventional and nuclear armament and delivery aircraft to blow any country to the Stone Age. To protect it, there's an ever-widening circle of cruisers, frigates, destroyers, overhead spy planes and in the deep waters, possibly two or more hunter/killer submarines.
The US has 12 CSGs and for the first time ever, is rolling out seven of these in a test of its new Fleet Response Plan. The new plan is a major and also costly change from the previous strategy of deploying only two or three CSGs at sea every six months. When one task force returned, another rotated to take its place. After Sept 11, the rethink calls for the US to have a "surge" capability of up to six CSGs to any point in the world within 30 days, to be supported by another three in 90 days.
In the present exercise, it is believed three of the seven CSGs are in the Pacific, led by the already deployed USS Kitty Hawk based in Japan, USS John C Stennis based in Hawaii, and new entrant USS Ronald Reagan, which is moving from Norfolk to its new base in San Diego, off the US West Coast.
The US CSGs will be doing military exercises with Taiwan these few weeks. With all these CSGs swirling around, the straits off Taiwan will be very crowded. Meanwhile, this month, China's People's Liberation Army is also staging air, sea and land exercises around Dongshan Island near Taiwan.
Just who is the US trying to impress? China, obviously, given the latest verbal China-Taiwan spat over renewal of arms sales. Some suggest North Korea. One bright spark on the Internet jokingly suggested "pirates".
Foreign policy analysts will, however, point out that the new plan flows out from the new National Security Strategy announced in 2002 by President George W Bush. One of its more forthright statements says, "The United States must and will maintain the capability to defeat any attempt by an enemy... to impose its will on the United States, our allies, or our friends. We will maintain the forces sufficient to support our obligations, and to defend freedom. Our forces will be strong enough to dissuade potential adversaries from pursuing a military build-up in hopes of surpassing, or equaling, the power of the United States."
In its reference to China, the same strategy paper has been critical, saying, "in pursuing advanced military capabilities that can threaten its neighbours in the Asia-Pacific region, China is following an outdated path that, in the end, will hamper its own pursuit of national greatness".
While the US continues to uphold a "one China" policy, under the Taiwan Relations Act, it is obliged to sell the island defensive weapons as well as commit to its defence if invaded. An Associated Press interview with John Pike, director of GlobalSecurity. org, a research centre on security issues, quoted Pike as saying that in the past, the US Navy could not deploy so many carriers at once but "now they are demonstrating that they are set up to do it". "If anybody anywhere gets any ideas - if North Korea gets frisky or the Red Chinese get too risky - they might have a half-dozen carriers show up on short notice," Pike said.
The ties that bind
Tensions obviously do not help the markets and business. In Australia last week, for example, the Sydney Morning Herald headlined a story "China and Taiwan: Flashpoint for a war". It said the tone of Beijing's rhetoric has changed and cited Richard Baum, a China specialist at the University of California Los Angeles, saying "the decibel level of harsh anti-Chen [Shui-bian] polemic has subsided, replaced by a mood of 'grim determination'." The paper repeated what Baum had written in a Yale Review article. "Before a tiger attacks, it remains calm and quiet," one Chinese scholar told Baum.
The Australian concern is palpable because of its strong support for the US as an ally in the Iraq invasion. "Already voices on the edge of both sides of Australian politics are querying whether Canberra needs to have its sailors and airmen 'fighting and dying' alongside US forces in defence of Taiwan," said the Herald. Given that China has emerged as Australia's biggest trade partner in the past few years, the anxiety is understandable.
Global markets are on tenterhooks. There's talk of renewed "stagflation" because rates are under pressure to rise worldwide but growth is decelerating. There is a corporate earnings recovery in the US but it is not accompanied by sustained and growing job growth. In fact, margins have increased not because of expansion but through cost cutting, delayed capital spending, and outsourcing of jobs and services. There's the bubble in property markets waiting to pop.
The world needs a driver and that was China in the past five years, when it accounted not only for the large growth in world trade but also foreign direct investments. Its recent attempt at a soft landing has already caused repercussions worldwide, from commodity exporters like Brazil and Australia to part-suppliers Asean and the US. Added to these are the uncertainties in Iraq, oil prices and the November US presidential elections, and you have all the ingredients for a volatile second half.
© Copyright 2004, The Edge Publishing PTE LTD.
