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Bauer Blogging Challenge #6

Published on 31/08/09
by Phil

What important events did you follow over the past summer, and how did it shape your view of the world?

Rather than discuss the perplexing world of <$4 natural gas and >$70 crude oil (read Alfonso’s blog for an overview of this), I’ve got to say that the Asian political environment has been fascinating this summer. China arrested several western executives on incredibly wide ranging fraud charges and for the first time since WWII, the opposition party won in Japanese parliamentary elections.The case surrounding Stern Hu and his fellow Rio Tinto executives is shocking. China has accused Hu of essentially leading to ~$100B in losses to the state. They are alleging that through a series of kickbacks Hu (and Rio Tinto) managed to inflate the prices of Iron Ore by that $100B figure. That is a massive figure, and the ongoing secrecy after the matter has got to be troubling for any firm in China supplying goods to the state.

Sinopec’s acquisition of Swiss firm Addax Petroleum is also only a sign of things to come. Chinese state oil companies are awash in cash and are likely to find it easier to purchase small and midsize E&P firms in the coming months rather than invest directly in E&P activities.

On top of China’s continued growth (which in this supposed global recession is shocking enough) the State has been prodding the US on its monetary policies. China’s dollar denominated holdings are proof positive of the symbiotic relationship between the two nations. For all of China’s talk of a new reserve currency, the State could not exit its dollar positions quickly without rapidly devaluing its remaining holdings. Everyone knows this, but by openly talking about the possibility the State is using is growing clout to nudge around the world’s remaining super power.

The Liberal Democrat’s have been Japan’s (ironically named) ruling conservative party since WWII. Over the summer it was clear that there was massive discontent amongst mainstream Japanese voters and that the Democratic Party of Japan (DPJ) had a legitimate shot at winning the lower parliamentary elections. Though results are unofficial, it appears that the Japanese people have handed the DPJ a sweeping mandate for change with a massive landslide election victory. It’s going to be a fascinating several months when the DPJ begins dismantling the Japanese bureaucracy.

The recession is changing the dynamics of the relationship between Asia and the West. Relationships entrenched for decades have begun to shift over the summer, and the world is likely to be a very different place when we start emerging from this recession over the next few quarters.

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