Asia Summit 2015 - Global Risk

Geopolitics and Global Governance

• Geopolitics and geoeconomics have merged into a single category, ending the "illusion of the end of history."
• Vuk Jeremić states that global governance is currently in a state described by Gorbachev as "not good," with institutions failing to cope with the pace of real-world change.
• Three primary geopolitical theaters of friction are identified as drivers of future economic trends: Europe (regarding Russia), the Middle East, and the Asia-Pacific.
• The United Nations remains the only universal multilateral institution, yet it is struggling to adapt to current realities, prompting some nations to create alternative structures like the AIIB.
• There is a growing tendency for states to bypass global institutions to pursue unilateral actions or create new, exclusive institutions.

Regional Security and Territorial Disputes

• The South China Sea dispute is driven by the shift in the global economic and security center of gravity to the Asia-Pacific and China's rising military capabilities.
• Control of the South China Sea is viewed by the US and China as essential for strategic stability rather than merely for oil or fish resources.
• Professor Jun Huang argues that international law offers no viable solution due to overlapping claims (9-dash line vs. national claims), making negotiation and power balancing the only options.
• The situation is characterized by an asymmetry of power where China's strength necessitates a balancing role for the United States.
• James McGormack identifies a potential "harder landing" in China due to its massive $10-$11 trillion economy, noting that a slowdown below 5% now has a much larger global impact than in the past.
• Southeast Asian economies face risks of being trapped in a "middle-income trap" if they cannot transition from serving China's export-oriented model to a consumption-led model.

The Iran Deal and Middle East Dynamics

• The Iran nuclear deal represents a shift from US containment/sanctions to cautious engagement and deterrence, creating a divergence between US and European approaches.
• There is a risk that economic opening in Iran could fund destabilizing activities in Yemen and Lebanon, potentially reigniting a 1980s-style Sunni-Shia conflict.
• The ISIS phenomenon is eroding the privilege of passport hierarchy, potentially forcing Western nationals to provide more personal data to travel safely.
• Structural low energy prices are driving a shift from "peak oil" to "peak oil demand," forcing petrostates like Saudi Arabia, Iran, and Russia to accelerate economic diversification.
• A potential financial crisis is forecasted for 2018–2020 due to the maturity of $5.8 trillion in shale oil and gas debt and high leverage in the sector.

Migration, Refugees, and Displacement

• The current migration crisis involves 60 million displaced people, the largest humanitarian crisis since World War II.
• Pratik Khanna notes that there is no unified global standard for migration, with policies diverging significantly between Europe, Asia, and North America.
• Vuk Jeremić predicts that Germany must lead a solution, potentially absorbing 1 million refugees, while the broader EU must share the burden to prevent institutional destabilization.
• The long-term solution requires promoting development, modernization, and stability in source countries (North Africa/Middle East) to enable voluntary repatriation.
• 70% of the world's refugees reside in a few countries (Jordan, Lebanon, Turkey), necessitating targeted global support for these host nations.

Economic Risks and Climate Change

• Global debt levels are at historic highs in both advanced and emerging markets, with foreign currency bond debt in emerging markets rising from $1 trillion in 2010 to $1.8 trillion in 2015.
• A potential Fed rate hike poses a significant risk if long-term interest rates rise alongside short-term rates, increasing debt servicing costs globally.
• China has become the number one producer of solar power and wind power, and India ranks second and third, challenging the notion that only developed nations lead in green technology.
• James McGormack warns that while a "glide" in Chinese growth is likely, the risk lies in a "bumpy landing" that could destabilize global supply chains.
• The Paris Climate Treaty is seen as a critical test of multilateralism, with the US and China leading efforts to ensure commitments are not ignored as happened with Kyoto.
• Low commodity prices present an opportunity for a new global infrastructure investment super cycle, particularly for populous nations like India, Indonesia, and Pakistan.

Institutional Effectiveness and Future Outlook

• The Asia Infrastructure Investment Bank (AIIB) is expected to succeed due to China's 25-year history of building infrastructure in its periphery and the pressure of 56 other member states to prevent corruption.
• Professor Huang asserts that global stability depends entirely on the bilateral relationship between the United States and China.
• Vuk Jeremić emphasizes that the only cure for the migration crisis is economic growth in source countries, citing Turkey and Mexico as examples where stability reduced migration flows.
• James McGormack expresses concern over political fragmentation in Europe, noting that anti-establishment parties and the potential for Grexit or Brexit threaten the Eurozone.
• Pratik Khanna suggests using the momentum from the Iran deal to push for international cooperation on other Middle East issues, specifically Syria.