China, India: Off the road map.
Also: energy markets, Lebanon, Syria, Niger and Ecuador.
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CHINA. INDIA. Off the road map.
Cross-border relations slide back down the mountain.
Xi Jinping was likely to skip next week's G20 Summit in New Delhi, media reported Thursday, after a row broke out over a Chinese map showing claims to Indian territory in the Himalayas. Beijing told Delhi to “stay calm” in its reactions.
INTELLIGENCE. After Xi met Narendra Modi at last week’s BRICS Summit, things had been looking up for Sino-Indian relations, which have suffered in recent years over hostilities at their disputed border, the Line of Actual Control. A new map has been blamed for a renewed breakdown in ties, but analysts may be overthinking India’s reactions and Xi’s apparent boycott of the G20. He likely has other reasons not to attend. And there’ll be more summits next month.
FOR BUSINESS. Like going to the office, attending international meetings seems optional in today’s post-pandemic world. Putin will also not attend the G20, and Biden will not attend the East Asia Summit. With leaders having less to agree on, and the G20 and EAS joining APEC and the UN in a crowded ‘summit season’ each September, it’s no wonder some chose to remain home. Taking China’s advice, businesses should “stay calm” when reading into this.
CHINA. Off the floor.
Signs of recovery in the Chinese economy.
Five big Chinese banks cut rates on Friday in a coordinated effort to support the economy. A private sector gauge of Chinese factory output showed a surprise recovery on Friday, hitting a level of 51 for August, against 49.3 expected.
INTELLIGENCE. The S&P/Caixin purchasing manager’s index provided good news for Asian markets after the official PMI published on Thursday showed a fifth month of contraction at 49.7 (albeit up from July’s print of 49.3). Coupled with credit market easing, Western analysts must now revise (again) their predictions of China’s coming collapse. Bad debts in real estate and ‘local government financing vehicles’ remain, but Beijing has more policy tools if needed.
FOR BUSINESS.The RMB also strengthened against the dollar on Friday after the People’s Bank of China said it would cut the level of foreign reserves banks must hold for the first time this year. Beijing is not out of the woods, but its economy is likely more resilient than many fear. Trade has slowed, and the government is deflating a significant real estate bubble, but China’s problems in that respect are hardly without precedent.
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ENERGY. Crude awakening.
Supplies are tightening as the northern summer ends.
Oil rose on Friday on reports that Russia would extend production cuts. The US Energy Information Agency reported on Thursday a drop in inventories of -10.584 million barrels for the week ended 25 August, versus -3.267 million expected.
INTELLIGENCE. Energy markets do not just mirror economics, but geopolitics, and the outlook for that is not good. Members of OPEC+ are expected to join Russia in continuing output cuts and several key suppliers – from Libya to Gabon – are in an uncertain state. Rising input prices are translating to more expensive electricity, including in Europe, where overall inflation is stubborn at 5.3%. This dynamic, in turn, continues to drive a political shift toward populism.
FOR BUSINESS. Amid worries over the strength of Chinese demand, traders were willing to look through tightening supplies, but markets have turned in recent weeks. Rising oil prices are expected to gain momentum unless US economic data surprises on the downside. The same is true in gas markets, with concerns over a potential strike in Australia and reports showing Europe imported 40% more Russian LNG this year than over the same period in 2021.
LEBANON. SYRIA. Proxy gateway.
Troubleshooting continues in an unstable region.
The UN Security Council on Thursday extended its mission in Lebanon by another year. Fighting between militias and US-backed Kurdish forces in Syria’s east killed at least 10 during the week, the latest in a series of renewed clashes.
INTELLIGENCE. Syria’s return to the regional fold has taken a backward step in recent weeks with inflation stroking renewed unrest in government-controlled areas and proxy battles beyond. Lebanon’s fiscal crisis and governance vacuum have likewise given militias such as Hezbollah freer reign, despite attempts by its sponsors in Iran to reach an accord with the Sunni Arab world (and potentially broker a deal with the US to return to global oil markets).
FOR BUSINESS. A broken economy has left drug smuggling one of the few profitable industries in Syria, much to the concern of neighbours like Jordan that, despite the détente, have undertaken unilateral strikes on Syrian narcotics factories. Lebanon is likewise a basket case, albeit with a parallel dollar-based economy fuelled by tourists to Beirut’s beaches and nightlife (never mind the drive through Hezbollah-controlled neighbourhoods from the airport).
With the brevity of a media digest, but the depth of an intelligence assessment, Daily Assessment goes beyond the news to outline the implications.
NIGER. Bon voyage.
Could Macron be risking a Benghazi moment?
Niger ordered police to expel France's ambassador on Thursday. France said on Friday it would respond militarily should its diplomats be targeted. Emmanuel Macron said France would not take orders from authorities it did not recognise.
INTELLIGENCE. Macron is playing chicken with a junta that has a lot less to lose than him. Staring down Niger’s demands may be designed to inject sangfroid amid a continent seeing civilian governments toppled, but Gallic insouciance seems increasingly unpopular throughout Africa. Leaders elsewhere are taking few chances. In the wake of Gabon’s coup on Wednesday, the governments of Rwanda and Cameroon have retired hundreds of senior officers.
FOR BUSINESS. France’s commercial investments in Niger appear sunk costs. Security and counter-terrorism interests are keeping it there. It’s a different case in Gabon, where despite the diplomatic unacceptability of the coup, business will likely soon return to normal. As markets ask who’s next, African jurisdictions will struggle to prove their stability. Foreign direct investment in Africa fell 44% in 2022, according to the UN in July, the biggest fall of any region.
ECUADOR. Andean rage.
Violence mounts ahead of a second-round vote.
Four car bombs exploded across Ecuador on Wednesday and Thursday, in the latest display of worsening gang violence. More than 50 prison guards and police remained hostage early Friday after riots earlier in the week.
INTELLIGENCE. Following Ecuador’s 20 August presidential elections and ahead of run-offs on 15 October, regional drug cartels are showing who’s boss. Candidates Luisa Gonzalez, a protégé of former president Rafael Correa, and Daniel Noboa, heir to a banana fortune, are no patsies but they will struggle to wrest control without assistance from the US or neighbouring Colombia and Peru, themselves facing their own security challenges.
FOR BUSINESS.Ecuador’s reputation for predictable politics and investment has taken a beating, including via a concurrent vote in August to ban oil extraction from the Yasuni National Park, where an estimated 1.7 billion barrels of crude, or 40% of Ecuador's reserves, are located. It’s not the only Latin American country with such concerns. Guatemala, which held a vote the same day, successfully elected a president, but on Monday his party was banned.
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