What is the world’s biggest security threat today?

Are we talking of a possible World War 3? Are we talking about global warming? Or are we talking the Great Recession (my name for the current economic turmoil)? Each one is a huge security risk, and I’d love to hear your personal views. But as for mine, the first two are long term concerns, whereas the latter has multiple concerns that in my view have even greater need of immediate action. Below, I’ve listed my thoughts about some of what I feel to be the biggest concerns:

Iran

The oil prices are going up; there’s been a recent threat to close the Straits of Hormuz, which would push up oil prices even further; there looks to be no more chance of coming to an agreement on what we all suspect to be Iran’s nuclear weapons development; relations with Israel are no better; and those with the power to back up existing sanctions on Iran are massively over-extended. So Iran seems to be a concern on many levels.

The Eurozone Debt Crisis

So many people cite this as a problem that it’s hardly worth mentioning it anymore. But it is nonetheless a significant problem area, and perhaps the world’s biggest. If Greece pulls out of the Eurozone it’s not the end of the world. Even if the Eurozone ceases to be there could still be hope for the world economy. But Greece is almost certain to default if current trends are continued, and the markets have known this for a long time, which is precisely the problem. Governments and politicians are not responding to economic changes fast enough, or even acknowledging basic economic lessons until weeks or even months after everyone else seems to have done. So yes the Eurozone Debt Crisis is an enormous security risk to the world. But it makes my top list largely because it’s so simple a problem. It is a basic economic fact that fiscal and monetary policy need to be balanced. So we knew years before this crisis came along that one day the Eurozone would have to choose to either split up, or embark upon closer fiscal integration. The fact that so few politicians are strong enough to stand up and admit this basic fact is frightening indeed!

Chinese Property Crash

Continued high levels of growth in China has been one of the main supports for the troubled world economy. Remove that support and who knows what kind of turmoil awaits us.

A professor of political science from Beijing University thinks that within a couple of years property holders in Beijing could be on their knees begging people to buy their properties. He recently said that in the “last couple of years people cried wolf, but this time it’s real.” Prices in Beijing and Shanghai are already on the slide. And China is already adding the equivalent of the entire housing stock of Spain every year. This is unsustainable, considering that the pace of urbanisation looks likely to slow in coming years. In fact the professor quoted above, can’t actually afford a house in Beijing. If professors can’t then who can?

Of course to a very large degree this is a policy induced slowdown in response to China’s economy overheating. Within China there are a lot of people who want to buy property; they just want to make sure that they’re buying when prices are going up, and not down. So in part this threat to the Chinese property market is a short term cyclical one. If the government acts to support the property market, and decides to remove restrictions on property transactions, such as the amount of deposit that needs to be put down and the number of properties you can buy, then there seems to be reason to believe that the property market will continue along its recent growth trends.

However, China’s economic concerns are the world’s economic concerns, and as far as this one goes it’s a big one. You may think that China is far away, and maybe that you’re not employed in the property sector. But if you are thinking that then think again. Construction directly amounts to around 10% of the Chinese economy. If you then add all the secondary industries like building materials and services we’re in fact looking at closer to 25-30% of the economy. Imagine what a big slump in this big a part of the world’s number 2 economy would do for your confidence levels if you were an investor. Declining confidence levels would probably have the biggest impact around the world economy. But more directly, think of all the industries related to property. There are hundreds right? And many of these are situated outside of China, or support other businesses outside of China. Next imagine all the companies linked to these hundreds, and then those linked into them. We live in a globalised world, which means that whatever happens to one country’s economy will have an influence on every other economy. So even if your job’s secured, this would affect you.

Security Concerns in the Pacific

In addition to the potential for a Chinese property market crash there is a great deal of concern stemming from the Pacific region. Simply from China there is a fundamental, growing gap between rural and urban regions, less investment opportunities than there once seemed to be, huge levels of over-investment from the state (for example the 2008 Olympics area is now already in a state of disrepair), and knowledge that in the not too distant future China’s one child policy will be creating extreme demographic pressures.

In North Korea, so little is known about the new leader (Kim Jong Un) that we all have to be on our toes with regards to Asia’s trouble maker.

And the opposition candidate (from the Democratic Progressive Party) in Taiwan’s upcoming Presidential election is far less pro-China than the incumbent, meaning that we could see a much more tense relation between Taiwan and China in the coming years.

All of this grants reason to believe that the US’s recent decision to name the Pacific region as an increased risk was not the act of a regional “trouble maker” as an officially sanctioned statement from one of China’s top generals said. However this kind of language, and these kinds of events that are open for different interpretations, are commonplace between China and the US. So we should also be looking at possible future tensions over territorial zones such as the South China Sea (through which $5 trillion in trade sails annually).

Indeed, China’s military capabilities and deployment is growing daily. And the new US defence policy will be expanding US military presence in Asia too (though shrink the overall size of the force worldwide). Australia’s Washington Correspondent even had to reassure listeners that “it’s not a containment strategy”.

All these factors are reasons for concern by investors. And yet I’ve barely scratched the surface. But hopefully it’s food for thought. What do you think about the world’s biggest security threat(s) today?

8 comments

  • What binds all those risks together is how society perceives them or more accurately, fails to recognise them, which for me is the greatest threat. I posted the following from yesterday’s statement concerning the decision of The Bulletin of the Atomic Scientists to advance the minute hand of the Doomsday clock to five to midnight.

    “A cross-cutting issue through the entire discussion is the worrisome trend to reject or diminish the significance of what science says is the characteristic of a problem,”

    • Thanks for posting. I completely agree with you. It’s been characteristic of governments to deny new scientific data about global warming, and proof that we really do have to deal with finite resources, for several decades. But the Great Recession is likewise proving that they do the same thing with economies. For instance I was watching the bond markets for a while as part of my MBA, and it was very easy to notice things that politicians could have acted on instantly. You’ll read about the big stories in the media that night or the following morning, depending on what you read. But you probably won’t hear the governments acknowledging it for weeks, let alone acting on it. Yes there is an argument for not telling people negative news as it spreads uncertainty and lowers confidence. But with politicians this far from reality, and this far behind the markets, that in itself lowers confidence, and a lot!

  • Phew!.. you really put in a big post there.

    In point format and response;

    1. I take issue with your posting “Iran” as a security threat. Iran is sitting quietly inside it’s own borders and not doing anything wrong. The US has named them as a threat and you have happily gone along with it.

    You know two days ago one of Iran’s top nuclear scientists was killed by a car bomb outside Tehran university? Iran is accusing Israel of being behind it.

    To me it is Israel who is the biggest security threat to the region since they are behind almost all the troubles in Arabia. Them and Saudi, but both have free passes from the US.

    2. I don’t think the Eurozone Debt Crisis will have any direct impact on security issues. The EU parliament is not invading anyone at the moment I think.

    3. The Chinese property bust would only affect China’s internal economy. Most of their growth is export led.

    Taiwan’s DPP has always been independance minded, and the Kuomintang affiliated with closer ties to the mainland. I don’t think a war will happen between the two countries as China is smarter than this and it is not really in their culture or history to invade physically.

    Summing up, I think the biggest security risk today is the same one that has been propelling conflict for the last decade. The US, Israel, and Saudi.

  • Hmm, me thinks we’re going to be disagreeing here again Sean.
    1. Is Israel more likely to declare war on Iran than vice versa? I think not. Iran is a security risk because if they declare as a nuclear armed state then Israel does the same in response, and we start looking at a possible world war 3 scenario in the Middle East.
    2. Security is bigger than military relations. The Eurozone debt crisis poses a threat to the world’s economic security, and as such deserves to be called a security threat.
    3. China is the world’s second biggest economy. An economic downturn there would have inevitable knock on effects for the rest of the world, especially since as you point out they are heavily involved in global trade.
    . Not in China’s culture to invade? What about Tibet?! The only thing that stopped China from invading Taiwan years ago was the possibility of a war with the United States. As China grows, and the US becomes ever more over-stretched around the world, the Chinese politburo will begin to keep its eyes out more and more for a plausible pretext that can be used to ‘reclaim Chinese territory’.

  • 1. Israel doesn’t need to delcare offical war when it is so heavily involved in espionage and terrorism.

    Also, Israel is already a nuclear state – “According to the Federation of American Scientists, Israel likely possesses around 75–200 weapons”.

    2. You didn’t state how the crisis will decrease economic security, but I’d rather debate the other points more anyhow.

    3. I stated China’s economic power is export led, not “heavily involved in global trade” which is a half-truth on your part. If anything, a downturn in the Chinese economy would stall their inflation/increasing costs of production and make them an even cheaper supplier/exporter to the western world.

    4. Bill Clinton sent ships to the Taiwan straight as a riposte to China’s massing of missiles aimed across the water at Taiwan. This was not read as an imminent sign of invasion by the Taiwanese, but as a form of coercion attempting to effect the outcome of Taiwan’s first democratic elections (1996) which were won by the indepedence minded DPP.

    China is displaying its preferred form of influence through its investments in Africa and despite being the worlds second largest economy it has not joined the UN in supporting any military invasions, nor got itself involved in petulant sanctions against countries that have nothing to do with it, or have different political systems than its own.

    With the one notable exception of Tibet, China’s hands are pretty clean. The UK on the other hand still occupy an island called the Falklands off the coast of Argentina which they have niether a current right to nor a historical claim to, and the US still occupy part of Cuba, a country which they have had full economic and travel sanctions on since the 1960s.

  • 1. My point was that everyone knows Israel has nuclear arms. A nuclear Iran would make them go public. But I’ll grant that Israel is a security threat as well. Their entire philosophy is built on Jabotinsky’s “iron wall” expression, which basically justifies the use of force in any and all circumstances.
    3. China is more than simply a factory. When you say they’re not heavily involved in trade you’re speaking relatively according to their population size, and the size of their economy. But remember how big both of those are. An economic slowdown would lessen Chinese investments elsewhere, reduce the current trend of increasing imports, create a huge degree of uncertainty in the world economy, and in any case, not benefit importers. Many of those exporters could in fact find themselves going out of business, as the number of buyers drys up thanks to the resulting global double dip.
    4. The US has sent ships to that part of the world several times I believe. And why do you think China was never willing to act against those other countries? For the same reason that Russia isn’t. Because its own human rights record is pretty attrocious.
    It was a poor example to give about the Falklands, since they want to remain British (http://www.totalpolitics.com/opinion/157402/why-the-falklands-want-to-stay-british.thtml). But don’t turn this into a moral debate. I stand strongly against western imperialism and as an example act to support the Chagos Islanders through the Democratic Reform Party. But that’s not what this is about. I listed the Pacific as a security risk, in this instance partly because of a factual history of tension between China and Taiwan, and because of a well known claim that China has over Taiwan. The security threat is real, and factual.

  • 1. Ok, so we’re kind of agreed that Israel is part of the security threat to the world, although just in different amounts. Probably as close as we’ll get to an agreement so we’ll leave it there.

    3. China – “When you say they’re not heavily involved in trade you’re speaking relatively according to their population size, and the size of their economy”.

    No, I’m talking about them not being heavily involved in consumption of western goods. They do consume basic raw materials, mainly from Africa and Oz, but those are used mainly in the building of infrastructure induced by urbanisation, and the manufacture of goods exported to western countries.

    A Chinese property collapse would have only a small effect on the world economy and not be considered anywhere near posing a security threat.

    4. Ignoring the minutae for a moment, I still don’t think Taiwan/China would be a security threat for the Pacific region, let alone on a worldly scale. The Pacific region also include NZ, Oz, California, etc. And I still don’t see China’s posturing as any more than sabre-rattling.

    Furthermore, Taiwan’s investments in China are considerably large now (the company which employs 300,000 people who make Apple’s products in Guangdong is actually a Taiwanese company), so economic integration has been a reality for a long time, and has dulled the Us vs Them mentality that dominated prior to China’s opening up to the outside world.

    And further-er-more, the semi-autonomous state of Hong Kong has shown that China can make political accommodations.

  • 3. The Western economy holds a smaller percentage of the global economy every year, meaning that each year the West becomes more affected by the ‘Rest’. It’s not easy to find people who think that a Chinese property crash would be disastrous for the global economy. But it is the opposite. First link I looked on (http://www.ft.com/intl/cms/s/0/6b521d4e-2196-11e1-a1d8-00144feabdc0.html#axzz1jeylXHsa) says:
    “The increasing prospect that this sector could come to a screeching halt has serious implications for the global economy at a time of deepening gloom and uncertainty. It is especially important for commodity exporters that have seen their economies boom on the back of Chinese demand for raw materials.”
    Remember that the commodities you’re talking about affect the other BRIC countries a great deal.
    4. History would disagree with you there, as would much of the Chinese elite. Every rising power feels the need to flex its muscles on occasion, and thus far China is not looking very different. Look back over the past few years and you see continual signs of tension between the US and China, as well as a recent comment (officially sanctioned by the govt) by a Chinese General saying that the Americans are trouble makers and pretty much always in the wrong in the Pacific. Now you may agree with the statement. But that’s not an argument to suggest tensions are not there. And economic dependency didn’t stop any other war in history.
    Of course I hope you’re right that it’s all merely sabre-rattling, and indeed that is the consensus at present. Of course China can make compromises. Pretty much every nation can. But nonetheless sources of tension do exist, and it is an area in which security is a question. I mean you’ve focussed solely on the big US-China thing. But in actual fact the bigger security threat comes from North Korea, who I seriously doubt you will think to have a peace loving government.

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