Chinese politics, North Korea: the economic dark clouds to watch for in 2018
Growth is forecast for the global economy, but investors shouldn’t get too complacent – here are the events that threaten the ‘blue skies and sunshine’
The global economy will grow at its fastest rate in a decade in 2018 – signalling its return to full health after the deepest world recession in a generation – but it might be foolhardy to grin too widely just yet.
With risks ranging from the tinderbox security situation on the Korean peninsula, to jitters over Beijing’s push for greater influence in China-based foreign firms, the “blue skies and sunshine” of brisk economic expansion could easily turn to “dark clouds and destructive storms”, the global risk consultancy Control Risks has said in its outlook report for the new year.
Like in the past 12 months, the combination of strong GDP growth and low interest rates would “fuel corporate profits and stock market highs” even as signs of imminent turmoil simmer in the background, the London-based firm said.
The report released on Monday did not provide a forecast for global growth but the International Monetary Fund in October said the world economy would grow 3.6 per cent this year and 3.7 per cent in 2018 – marking the fastest growth since 2010.
“Nevertheless, 2018 presents a series of complex issues that will test the mettle of leaders of all persuasions and the optimism of investors,” said Richard Fenning, the Singapore-based chief executive of Control Risks.
“War on the Korean peninsula is extremely unlikely, at least intentionally,” the firm’s Northeast Asia expert Julia Coym wrote in the report.
What would China do if North Korea and the United States go to war
One exit from the current stand off is a so-called “double freeze option”, in which the US and South Korea cease annual joint military drills in exchange for North Korea halting missile and nuclear tests.
There is a possibility however that progress may be made if Pyongyang officials are convinced to sit down for talks.
“Multilateral negotiations are rarely about achieving a desirable outcome. More often they are about the dark arts of securing the least bad option,” Coym said. “In the case of North Korea, it is not yet clear what that least worst option might be.”
ELSEWHERE IN ASIA
Across the Yalu river on the Chinese mainland, all eyes will be on growing pressure on foreign companies to “install ‘active’ Communist Party of China organisations within their ranks”, Control Risks said.
What happens to Chinese oil if US-North Korea war erupts?
The mainland’s company laws already require organisations with three or more members to have a resident Communist Party group.
Communist Party representation in China based multinational firms stands at around three per cent of the work force – compared to about six per cent in the wider population.
But while the rules have thus far been “mostly symbolic and lightly enforced”, the mood has changed following this year’s 19th Party Congress, according to the consultancy’s China expert Shawlin Chaw.
She added: “Going into 2018, there will be noticeably more politics in the Chinese operations of foreign businesses, whether via the influence of Communist Party workplace committees transmitting Beijing mood music – or potentially something more onerous – or new regulations capriciously enforced.”
Meanwhile India, Asia’s third largest economy, will need to grapple with modernising its economy without “being constrained by a swing to the conservative identity politics of Hindu nationalism and the politics of division,” Control Risks said.
As for Japan – sandwiched between India and China as Asia’s number two economy – the key challenge “remains in the implementation of structural reforms, opening up protected sectors and revitalising the ageing workforce,” the report said.
Malaysia, which will go to the polls next year, “will almost certainly” return Prime Minister Najib Razak and his ruling United Malay National Organisation (UMNO) to power, Control Risks said. “Nevertheless, behind this apparent predictability, maintaining this political machine is becoming ever more difficult for Najib amid persistent scandals, weakening institutions and increasing divisions within UMNO.”
