Journal of Political Risk, Vol. 4, No. 6, June 2016

Peter Solomon

Flag atop a Chinese Coast Guard vessel near Panatag/Scarborough Shoal in the South China Sea. As seen from a Philippine fishing boat on Philippine Independence Day. June 12, 2016. (Photo credit: Anders Corr and Kalayaan Atin Ito.)

China is cruising toward the finish line in what has become an uncontested race for power in the East Asia-Western Pacific region. There is no question China’s leadership understands that in order to retain the reins of power it must keep pace with the demands of its population, which is the largest in the world. After three decades of at least 10 percent GDP growth, however, the 2010s have proven difficult for China to attain that level of achievement. China’s transition to a consumer-driven economy, moreover, means that China’s growth rates will likely continue to contract as the middle class expands and cheap labor-intensive jobs move elsewhere.

One way China seeks to support its historically high growth rates is by expanding its territory and power-projection capabilities in the South China Sea. This expansion, for example, involves China’s increased naval presence and China’s transformation of half-submerged reefs into artificial islands boasting newly constructed runways in the region. China’s expansion and its professed ownership of 85% of the Sea — including reefs, islands, sand barges, and rocks — conflicts with the historic claims of ownership of such nations as Malaysia, the Philippines, and Vietnam.

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Journal of Political Risk, Vol. 4, No. 6, June 2016

the Philippine Stock Exchange at the financial district of Makati city, east of Manila, Philippines. As the Philippine economy skyrocketed 7.8 percent in the first quarter, outpacing China, the middle class in the Southeast Asian nation that has been held back by widespread poverty, political strife and corruption is for the first time in decades reaping the profits of an economic boom. Source: Flickr.

Dr. Tom K. Stern
Introduction

On June 30, 2016, Rodrigo Roa Duterte will be sworn in as President of the Republic of the Philippines. How he handles the tensions over Chinese land-grabbing, a regional arms race, plus brushes with danger when American and Chinese forces grate against one another will decide how well the Philippine economy can perform during President Duterte’s term.

What is the main risk?  That China turns warlike when told to withdraw from Philippine territory, according to an expected ruling by the International Court of Justice. Or, a risk equally bad for America, the Philippines could cave in to Chinese pressure and trade territory for big money, which China has to spend. When evaluating potential for the Philippines to acquiesce to Chinese expansion or even to favor Chinese hegemony, economic factors come into play.  China’s comprehensive strategy to tilt the Philippines into China’s orbit includes the common tools of geopolitics, including a precisely calibrated balance combining coercion and friendship.

Trade between the Philippines and China is documented for more than 2,000 years. Today many of the Philippine wealthy trace their roots to China. They may carry a Spanish name, but believe in Buddha as well as Jesus.  They speak Chinese, eat Chinese food in Manila, and work hard in a difficult economy. They may choose to be buried in Manila’s vast Chinese Cemetery. Many of them have family in China, travel there regularly, and enjoy modern life in the big cities.  Most of them love America and our society, but prefer to avoid having to choose sides. Others with democratic commitments wish to stay friends with their big brothers in Beijing, but not finally at the cost of losing America.  As in most political struggles, one can find widely divergent points of view in Manila on the desired nature of the Philippines-America-China relationship.

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Journal of Political Risk, Vol. 4, No. 6, June 2016

1876 Tilden-Hayes Election, February 1877. Source: Derrick Bostrom via Flickr.

Bhakti Mirchandani
Senior Vice President at An Alternative Investment Management Firm

Abstract

Popular resentment of changes in the economy and of the political elites administering some of those changes is palpable during this year’s presidential campaign.[1]  Public distrust is rife: the electorate views narrow moneyed interests as increasingly driving public policy and the legislative process as broken.[2]  At the same time that American voters are “tired of Washington politicians,”[3] the legacies of Presidents without elected office experience before being sworn into the Oval Office demonstrates the difficulty for outsiders to be effective Presidents.  Numerous academics, such as Arthur Schlesinger, have dedicated decades and thousands of pages to presidential backgrounds and legacies, and every four years the media examines the credentials of prospective and prior Presidents.  This article is a short opinion piece about the shortcomings of past outsider Presidents.  Their flaws ranged from cognitive bias to tolerance of corruption and from excessive use of clandestine plots to lack of political skill.  Only two of the five outsiders–Dwight Eisenhower and Ulysses Grant–were reelected to second terms.

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Journal of Political Risk, Vol. 4, No. 6, June 2016

The United States, Japan and India participate in a joint military operation. The U.S. says at least one Chinese ship tailed the USS John C. Stennis daily during its recent cruise through the South China Sea, although no hostile incidents were reported. Source: U.S. Navy.

Nong Hong^[1]

Abstract

The existing territorial and maritime disputes in South China Sea have been pending for decades. Despite tremendous efforts on conflict management, the settlement of the decades-old maritime dispute in the South China Sea seems to be politically deadlocked. The Philippines, losing patience and confidence on negotiations on various levels, has stepped forward by utilizing the arbitration procedures under the United Nations Convention on the Law of the Sea and sued China on January 22, 2013. This paper attempts to answer such questions as, will the arbitration case resolve the dispute between the Philippines and China; what is the political and legal consequence following this; what is the impact of the Philippine’s arbitration initiative for the negotiation and drafting process of the Code of Conduct; what is the value and role of the UNCLOS in maritime dispute settlements in the South China Sea; and, in a broader sense, is the recent escalating tension in the South China Sea a consequence, explicitly or implicitly of the arbitration case. The author argues that despite the value ascribed  to the compulsory dispute settlement under UNCLOS, the South China Sea Arbitration Case does not resolve the problem between the two countries. Even more complicated, some have blamed the Philippines for triggering the negative reaction from China, which will lead to an uncertain post-arbitration situation. The author raises a question: Is the Philippines’ use of UNCLOS arbitration a genuine attempt to resolve its maritime dispute with China? Or is it merely a political game of international law?

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Journal of Political Risk, Vol. 4, No. 6, June 2016

Traditional Geopolitical Risks for GSCs (Source: PWC – Transportation & Logistics 2030 [p. 17])

Abstract

The geopolitical underpinnings of economic globalization are changing. Transnational corporations (TNCs) and their network of supply-chains have to operate in a business environment in which emerging geo-economic forces are interacting with shifting geopolitical realities. The challenges for geopolitical risk management will increase in a world of multiple poles of economic power.  TNCs and firms operating globally will need to develop a sense of strategic awareness of the new geo-economic spheres of influence and the systemic geopolitical risks reshaping the interdependence of countries and companies in the global marketplace. Corporate geopolitics need to be an essential component of business strategy.

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