US-China ties biggest risk for global investors: Eurasia Group

US-China ties biggest risk for global investors: Eurasia Group
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First Published: Mon, Jan 04 2010. 10 25 PM IST
Updated: Mon, Jan 04 2010. 10 25 PM IST
New Delhi: US-China relations have been rated the top political risk for global investors and market participants in 2010, which will likely be far more turbulent geopolitically than last year when the world was busy fighting the financial crisis, Eurasia Group said on Monday.
India-Pakistan ties ranked eighth in the list of top 10 risks released by the New York-based political risk consulting firm in a note to clients. The two South Asian governments, it predicted, faced serious factors pushing them towards confrontation.
“With the world now coming out of recession, the risks are starting to shift to the challenges created by the emergence of a new global order,” Eurasia Group president Ian Bremmer and head of research David Gordon wrote in the note.
Such challenges pit developed and developing states, “the old unipolar system vs the emerging non-polar one, and the old dominant globalized system of regulated free market capitalism vs the growing strength of state capitalism.”
All three themes converge in US-China ties, the world’s most important bilateral relationship in 2010, according to a press statement from Eurasia Group.
Mint publishes the monthly Global Political Risk Index compiled by Eurasia Group that serves as a composite measure of a country’s government, society, security and economy.
Here are the top 10 political risks for 2010 as ranked by Eurasia Group:
1. US-China relations: High US unemployment and strong Chinese growth will heighten tensions. Key issues include climate change, nuclear non-proliferation, international trade, cyber security and armed conflicts around the world.
2. Iran: Post-election domestic pressures are intensifying in Iran, which faces a new round of UN sanctions. “The Iranian regime looks increasingly like a cornered, wounded animal. In 2010, it’s likely to act like one.”
3. European fiscal divergence: “Fiscal policy coordination has been eroding for some time, and member state political processes are highly uneven,” says Eurasia Group, which predicts complex fiscal challenges for Greece, Ireland, Spain, Portugal and Italy.
4. US financial regulation: “Upcoming mid-term elections will encourage populist approaches, and despite congressional awareness of the risks of over-regulation and taxation of the financial sector, domestic political interests will be at odds with the need for effective reform.”
5. Japan: “An anti-big business approach threatens financial confidence, deepening economic woes.”
6. Climate change: After the Copenhagen summit, individual countries will likely move towards “nationally appropriate” mitigation measures, creating a bigger challenge for international coordination.
7. Brazil: Brazil faces the emergence of “resource nationalism” in an election year that will see further growth of state enterprise and the government becoming more inwardly focused.
8: India-Pakistan: A decision by Pakistan to go after terrorists domestically provides “Islamic extremists with powerful incentives” to step up attacks on Pakistan’s urban centres and to try and reignite conflict with India.
9. Eastern Europe, elections and unemployment: High employment as a political risk is the biggest worry in Eastern Europe because several upcoming elections increase the prospect of instability. Governments in Ukraine, Hungary and Latvia could be tempted by “protectionist, nativist and populist policy options.”
10. Turkey: The ruling AK Party is embroiled in disputes with the judiciary, industrialists and the military while its overtures to its Kurdish population have failed. Eurasia Group predicts that internationally Turkey will drift further away from Europe and seek more engagement with Syria and Iran.
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First Published: Mon, Jan 04 2010. 10 25 PM IST