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STRATFOR.COM
Global Intelligence Update
October 3, 1999
Fourth Quarter Forecast
Summary:
As we enter the final quarter of 1999, we are struck by
how much the world has changed since the year began. The virtual
disintegration of Russia's experiment in liberalization and China's
dramatic retreat from many of its internal and external openings,
coupled with its growing tensions with the United States, show the
distance we have come and the increasing velocity of the processes
we have been tracking.
Analysis:
It is our view that the major trends described in our
Annual Forecast [ http://www.stratfor.com/services/giu/1999.asp ]
remain intact. The Asian economic bloc has not developed as quickly
as we thought it would and the Ukrainian crisis has been delayed by
events in the Caucasus, Central Asia and Moscow. While we no longer
expect these developments this year, we do very much continue to
expect them. On the other hand, our other forecasts have either
come to pass or are likely to come to pass before the end of the
year.
The fourth quarter will see a continuation and intensification of
the central global process: the realignments of domestic politics
and foreign policy in both Russia and China. We continue to see
tension, turmoil and instability throughout the Eurasian land mass,
particularly in Eurasia's two leading powers. We expect Russia,
with the support and encouragement of China, to intensify the
process of expanding its influence into the old Soviet Empire. We
expect China to continue and intensify its efforts to control
internal centrifugal forces, while intensifying its confrontation
with Taiwan and the United States. A summit meeting appears to be
set between Russian President Boris Yeltsin and his Chinese
counterpart, Jiang Zemin, in November and, assuming that both
survive politically until that date, we expect that summit to be a
critical event not only for the year but for the coming decade
In China, Jiang took off his Western suit and tie, put on a Mao
suit, and stood watching while gigantic portraits of Mao and Deng
passed by and tanks and missiles deployed, in the largest military
show of force in about 15 years. His change of costume is a self-
conscious symbolization of the dramatic change China is undergoing.
Jiang is desperately trying to recreate the Communist regime that
had been permitted to fray during the country's economic boom.
While party cadre and army officers were busy making money in
lucrative deals with Westerners, Communist symbolism and even
institutions seemed to become archaic and irrelevant.
Now that the halcyon days are past, Jiang urgently needs to create
a new center of gravity for China. All he has to call on is the
Party. In dusting off his old Mao suit, Jiang hopes to lay claim to
the charisma of China's founder in order to save the regime from
the cynicism and corruption that destroyed the Soviet Union.
Jiang also seeks to save his own hide. After all, he presided over
China's reversal of economic fortune. Thus, while trying to
resurrect the authority of the Party over the country, Jiang was
trying also to make it clear that he controls the Party. Standing
on the reviewing stand, Jiang became Chairman Jiang, the heir to
Mao and Deng in everything but name. And that is what we find
fascinating. It would be much more effective to be named Chairman
Jiang than to merely look like Chairman Jiang. In fact, trying to
look like a chairman without being given the title reveals more
weakness than strength.
The reason Jiang was not named Chairman is obscure, but we think
the key to the reasons might be found flanking him on the reviewing
stand. On one side, Prime Minister Zhu Rongji, still there, still
unfireable, regardless of Jiang's best efforts. Jiang has done
absolutely everything possible to make Zhu the scapegoat for
China's economic problems. Indeed, Jiang has a case, in the sense
that Zhu was the architect and spokesman for many of China's
reformist economic policies. Nevertheless, Jiang does not seem to
have the strength to hang Zhu from the yardarms. Even more
interesting, on Jiang's other side was Li Peng, stalwart
conservative, disapproving of many of the reforms. Li, who had
apparently been eclipsed by history, has not only survived, but
seems to point the way to the future - a future filled with Mao
suits and perhaps new editions of little red books.
Jiang's dilemma was clearly revealed on the reviewing stand. He is
not chairman because he does not command a unified coalition. The
Chinese Communist Party is deeply split. The split is far from
simple and can hardly be reduced to two factions. Indeed, there is
a swirling complexity to Chinese politics that is difficult to
discern clearly from the outside. Nevertheless, this much is
clear: Jiang did not have the clout to make himself chairman before
the Oct. 1 celebrations. Instead, he could only act like one. Nor
could he depose Zhu or Li. The best he could do to hold on to power
was to use the deep split in the Party to create a space somewhere
between them. Jiang has become politically indispensable without
having the power to make himself undisputed boss.
This means there is a political crisis fairly near at hand in
China. First, economic deterioration requires political
realignment. China is moving backwards to older administrative
models. This will create tremendous tension between those who were
losers during the reformist regime and want to go back, and those
who fear a conservative future. Such tension could tear any country
apart and China is, after all, just another country. Jiang clearly
does not have enough power to suppress the tension. This leaves
him with two choices. He either acts quickly and decisively to gain
control of the situation, or he allows the myriad factions in
China, without a credible and strong central power, to tear the
country apart. We believe the make-or-break point is near at hand
and China's die may be cast in this coming quarter. Our best guess
is that Jiang will try, and temporarily succeed, in consolidating
his power, but that, in the long run, fragmentation will overwhelm
both him and quite possibly the central apparatus as well.
In Russia, as expected, reform has completely collapsed. There are
now those who profited from the corruption of the reform period and
want to hold on to power, and those who want to sweep away the
entire memory of the period. The latter are not part of the Russian
regime. Some are in the Duma. The most important non-regime
elements are the Russian people themselves. The masses of Russians
outside of Moscow and St. Petersburg have seen Russia go from a
poor but powerful nation to one much poorer and much less powerful.
The problem is simply this: Everyone in the current elite is
tainted with the regime's corruption. Even Prime Minister Vladimir
Putin, the former KGB man and FSB head, is intimately tied to the
oligarchs. The situation in Russia is unsustainable. No nation can
be in the condition that Russia finds itself without a cataclysmic
political readjustment. The only question now is how it will come.
The public debate in Russia today is between two factions. First,
there are the oligarchs who used reform to steal for themselves
fantastic amounts of money and who are now engaged in brutal
battles with each other and everyone else. Then there are the old
Gorbachevites, like Putin, who started the whole process. The old
KGB hands were the first to realize that the Soviet Union was
falling behind the West and that it needed Western technology and
investment to catch up. Gorbachev's policy was to encourage that
investment in the context of the Soviet regime. When the regime
collapsed, the distinction between liberals and Gorbachevites
disappeared.
That distinction has returned in Putin, whose core policies are to
rebuild the basic institutions of a centrally-planned economy and
expand the influence of Russia throughout the former Soviet Union,
without either fully doing away with the market or actually
stripping away the money and power of the oligarchs. It is a
hopeless policy, but it will dominate the next quarter.
As Putin attempts to tread water, Russia will be focused on
December's Duma elections - an event described by the Russian press
as a battle over who will control the distribution or
redistribution of property and power. The Duma elections will, in
turn, set the stage for the presidential elections next June.
Currently leading in the polls is the "Fatherland - All Russia"
electoral bloc headed by Moscow Mayor Yuri Luzhkov and former Prime
Minister Yevgeny Primakov. This bloc, which builds on the support
of many regional governors, as well as most of the now-splintered
Agrarian Party, enjoys the financial and propaganda backing of
Vladimir Gusinsky's MOST Group empire. Interestingly, the MOST
Group, primarily a media empire built around the MOST Bank, is
heavily permeated by KGB officers.
Former KGB First Deputy Chairman (under Vladimir Kryuchkov) Gen.
Filipp Bobkov heads MOST's analysis and planning office. As for
coup leader Kryuchkov himself, he reportedly works for AFK Sistema,
the Moscow city government's holding company. Fatherland-All Russia
looks increasingly like the party of the KGB, which may signify
that it has the support of Putin. Not that it matters, since the
KGB wins whether Putin or Primakov takes the presidency.
In other words, electoral politics in Russia now all lead back to
the same place: the KGB and the oligarchs to whom they are
intimately connected. The central question here is whether this
faction can survive. To put it simply, it is either this faction or
a revolution. We are increasingly of the opinion that Russia is in
a pre-revolutionary state, which might well be as cataclysmic as
1917. We simply do not see how Russia's corrupt and collapsing
institutions can sustain themselves in the face of almost universal
bitter contempt and hostility from virtually every segment of
society. The choice is between a brutal repression by the secret
police or chaos and revolution followed by brutal repression by the
revolutionaries. It seems to us that the second option is
increasingly the more likely outcome.
This does not, however, affect our forecast for Russia in the
Fourth Quarter. We expect Russia to be absorbed in the elections.
However, in being absorbed, Putin and Yeltsin will both be
motivated to demonstrate their mastery of the state and their will
to return Russia to greatness. This is already observable in the
Caucasus, as Russia maneuvers to impose its power in Chechnya as a
prelude for regaining control over the strategic Caucasus. In
general, we will see a growing Russian assertiveness within the old
borders of the Soviet Union, partly motivated by domestic politics
and partly by strategic considerations.
We are seeing, therefore, a general political crisis gripping
Eurasia as a whole. As part of this crisis, both Russia and China
can be expected to be more self-absorbed. However, in their self-
absorption, both will find it expedient to be not only indifferent
to the West and the United States, but to be generally hostile in
order to demonstrate domestically the assertive power of their
regimes. Since both the Russian and Chinese leaderships are limited
in what they can do domestically, they will need to appear decisive
in foreign policy. Neither can solve the serious (and very
different) economic problems confronting them. Each can appear to
be dealing effectively with foreign policy issues. Thus, self-
absorption creates foreign policy initiatives whose prime audience
will be domestic, and in which strategic issues become a subset of
broader considerations. This creates opportunities for strategic
risk taking.
We have already seen this in China's confrontation with Taiwan and
Russia's behavior in Dagestan and Chechnya. However, there are
severe limitations on the two countries' abilities to act
definitively in either region. China may well initiate some sort of
military action against Taiwan, but we don't think it has the naval
capacity to invade and occupy the island. Russia will try to subdue
Chechnya, but it lacks the military power to impose order in the
Caucasus. In many ways, these military adventures reveal weakness
more than they serve their true purpose - to showcase the authority
and power of the regime.
Given all of this, it appears both the Chinese and Russian
leaderships are seeking some sort of triumph. Since they can't
achieve it in economic policy or military adventure, we think they
will seek it in an arena they can control and define: diplomacy.
Specifically, we see the November summit between Jiang and Yeltsin
to be a strategic opportunity for both to deliver a triumph that
shows their mastery. The result will be, we think, a formal
alliance between Russia and China, fairly explicitly directed
against the United States.
Since neither can expect economic help from the West, they have
nothing to lose economically. More important, anti-Americanism
sells in both countries, where resentment of American power is huge
and many hold the United States responsible for their economic
problems. We therefore think that, given domestic politics and
economic realities, the November summit will bring dramatic changes
to the international system. That assumes, of course, that internal
political crises in Russia and China don't impede their current
leaders' ability to act.
This means that as Russia and China move toward internal crises
with extremely uncertain outcomes, U.S. foreign policy is
increasingly rudderless as the end of Clinton's presidency
approaches. In one sense this is a safety valve, preventing
unfortunate initiatives by the United States. In another sense, it
leaves the global system without leadership in its most powerful
state. This affects not only Russia and China, who are essentially
beyond U.S. influence. Its greatest effect will be elsewhere, in
non-Chinese East and Southeast Asia.
We see a new politico-economic dynamic being established in this
region. We see the current economic recovery as having two aspects.
First, it is an upturn in a general, long-term down cycle and is
therefore of limited long-term importance. Second, it is
bifurcating Asia between countries that may have stopped declining
and those, like Japan, that will continue to decline. Alongside
this process, we are seeing the political consequences of economic
dysfunction beginning to show. These consequences have taken their
most extreme form in Indonesia, but the consequences are visible in
the rest of Asia as well. In country after country, the old regimes
struggle to contain the destabilizing forces that have been
unleashed by economic decline. All of them will not succeed in
containing these forces. In Japan in particular, a political day
of reckoning, if not at hand, cannot be permanently postponed.
These processes have created centrifugal forces in Asia. But at
the same time, the World Bank's reversal on short-term capital
controls means that the international financial community will now
tolerate the creation of an Asian Monetary Fund to administer
controlled capital markets in Asia. We expect a number of regional
states to see this as an attractive opportunity to counteract the
centrifugal forces. If the recovery does run out of steam, Asia in
general and Japan in particular will be drawn in this direction.
We also see political forces pushing Asia together. The Australian
action in East Timor, followed by Australia's statement of its
"deputy" role in Asian affairs, did not go over well in much of
Asia. There is a growing realization in ASEAN that Asian nations
must develop more control over Asian affairs. This sense will
intensify if China and Russia simultaneously move closer and
experience serious political crises while the United States becomes
more inert. Non-Chinese East and Southeast Asia will be moved by
economics and politics to overcome centrifugal forces and create
some Asian entities.
The creation of an Asian economic or political bloc will not happen
in 1999, but the process may move from something not discussed in
polite company to a serious, public policy debate in the region.
All of this will increase pressure on Japan to take a more
assertive leadership role in the region. But that will have to wait
until the next decade.
The Fourth Quarter of 1999 will be heavily focused on the drama
being acted out in China and Russia. It will be increasingly
difficult to understand what is going on in either country, as
politics recede behind more traditional, conspiratorial curtains.
The most interesting question will not be who controls the center,
but whether the center can hold at all. At the same time - and not
coincidentally - Russia and China will move closer to each other
and become more antagonistic to the United States. In the midst of
this, East and Southeast Asia will begin turning their attention to
geopolitical issues that haven't been dealt with in over half a
century.
The Fourth Quarter will, we think, be a fitting preface to the
coming century.
(c) 1999, Stratfor, Inc.
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