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:
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?