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Pyongyang successfully launched its first military reconnaissance satellite after two previous failures. North Korea has developed a robust missile arsenal but, until now, lacked a remote reconnaissance capability to identify, track, and attack U.S., South Korean, and Japanese military targets. The satellite’s capabilities, as well as whether it incorporated Russian technology, remain unknown. North Korea announced the satellite surveilled U.S. military bases in Guam and vowed to launch several additional reconnaissance satellites “in a short span of time.” South Korea responded by suspending portions of an inter-Korean military agreement meant to prevent military clashes along the DMZ, raising tensions on the peninsula even further. On November 21, Pyongyang conducted its third attempt at launching its Malligyong-1 military reconnaissance satellite onboard a Chollima-1 rocket. Previous launches in August 2023 failed to achieve orbit, but clearly, North Korea learned some valuable lessons. The South Korean navy salvaged some of the rocket and satellite debris from the ocean floor, enabling technical analysis, though the results have not been disclosed. Kim Jong-un declared the regime’s intention to develop a military reconnaissance satellite in his January 2021 directive to the regime’s defense industry. Other delineated military projects included a solid-fuel ICBM, tactical nuclear warheads, hypersonic gliding flight warheads, and a nuclear-powered submarine. >>> North Korea and Russia: How Far Could Their Partnership Go? North Korea reported an “important final-stage test” in December 2022 involving a mock satellite and subsequently released two poor-quality images of the Korean Peninsula. Experts denigrated the grainy, low-resolution images as being of far worse capability than commercially available imagery. Kim Yo-jong, the sister of North Korea’s leader, responded angrily that the test was to show the feasibility of the system rather than the eventual quality of the imagery. In April 2023, Kim underscored the importance of having “several reconnaissance satellites on different orbits [for] securing real-time information about the hostile forces’ military scenario and moves.” Ironically, North Korea’s most recent satellite launch occurred the same day the regime criticized South Korea and the United States for “recklessly” militarizing space, describing Seoul’s upcoming launch of its own reconnaissance satellite as an “extremely dangerous military provocation.” It is possible that Russia provided technology to improve North Korea’s satellite launch capabilities in return for Pyongyang’s shipments of massive amounts of artillery ammunition to Moscow. During Kim’s September 2023 trip to Vladivostok, President Vladimir Putin hinted at providing military and technological support to North Korea. Secretary of State Antony Blinken warned Russia was providing “technology and support” for North Korea’s military programs, though without elaborating on details. A South Korean military official told reporters that an 80-ton liquid fuel engine was transferred from Russia to North Korea even before the September summit. Russian engineers traveled to North Korea after the summit. More likely, however, North Korea’s long-planned launch occurred too quickly after the Kim-Putin summit to have incorporated new Russian technology. Pyongyang announced it had developed the satellite and launcher “by its own efforts and technologies.” Pyongyang has frequently failed initial tests of new missile systems before eventually succeeding. South Korea responded to the launch by partially suspending the 2018 Comprehensive Military Agreement, which then-President Moon Jae-in hailed as a major step in improving relations with Pyongyang. The accord established mutual risk reduction and confidence-building measures to reduce the potential for inadvertent military escalation. However, the Yoon Suk Yeol administration declared that North Korea repeatedly violated the agreement and criticized provisions of the deal, which curtailed allied reconnaissance and military training activities. The Yoon administration announced it would suspend Article 1, Clause 3 of the agreement and restore airborne reconnaissance operations along the DMZ. >>> Next-Generation Interceptor Needed in Greater Quantities to Stay Ahead of the North Korean Missile Threat Any North Korean launch using “ballistic missile technology” is a violation of numerous U.N. resolutions, regardless of whether it is depicted as a civilian space launch. While China and Russia will veto approval of any new U.N. resolutions, the United States should step up its enforcement of U.S. and U.N. sanctions and work systematically with the international community to target North Korean violators, as well as entities in Russia, China, and elsewhere that facilitate Pyongyang’s transgressions. The U.S. should also counter the growing North Korean military threat by strengthening security cooperation with allies South Korea and Japan, while encouraging these two allies to improve their bilateral cooperation. Last year, the U.S. resumed large-scale military exercises with South Korea and restarted rotational deployments of strategic assets, both after a four-year hiatus. Washington, Seoul, and Tokyo also restarted trilateral military exercises. These measures have augmented allied deterrence and defense capabilities. The three nations should consider a return to pre-2018 training levels as a minimum requirement for future training schedules. Given the escalating growth in North Korean nuclear and missile forces, Washington should confer with Seoul and Tokyo on a training regimen that includes all military services and goes beyond ballistic missile defense and anti-submarine exercises to include air and ground forces. The historic trilateral Camp David Summit in August paved the way for greater American-led military, economic, and technological cooperation against common security threats in the Indo-Pacific. The three leaders, however, will need to operationalize the extensive security agreements they reached as well as commit greater resources to offset advancing Chinese and North Korean military capabilities represented by this launch. This piece originally appeared in The National Interest https://nationalinterest.org/feature/north-koreas-spy-satellite-launch-one-giant-and-dangerous-question-mark-207448

China’s silence towards the European Union’s electric vehicle probe could mean that a more harmful retaliation is on its way During her State of the Union address on 13 September, European Commission President Ursula von der Leyen announced that the European Union would undertake an anti-subsidy probe against the Chinese electric vehicle (EV) sector. This signalled a major step in the EU’s shift to a more aggressive trade defence against China and raises the question of how China will react, given the importance of the Chinese market to key sectors of the European economy (including the auto and luxury sectors), and also given China’s crucial role in providing goods to the EU for the green transition? An EU-China High Economic and Trade dialogue on 25 September in Beijing, between EU Trade Commissioner Valdis Dombrovskis and his Chinese counterparts, may have given a glimpse into China’s mindset. There were fears Chinese officials would respond aggressively to von der Leyen’s announcement during Dombrovskis’s visit but this was not the case. Nevertheless, the silence may be deceptive. Three main factors should be taken into account when considering potential Chinese retaliation. Subtle but harmful retaliation First, China might file its own anti-subsidy investigation at the World Trade Organisation against key European sectors. This would not be difficult since Europe has ramped up its subsidies massively since the pandemic, and more recently has attempted to gain more ‘strategic autonomy’ in sectors including semiconductors. There is very little the EU can do about this potential retaliation, which would be costly for the sectors targeted and for the EU’s image as a free-trade and WTO champion. Second, China could try to persuade EU governments that the Commission-led investigation should be withdrawn. A similar probe happened in early 2014, when the EU launched an anti-subsidy investigation into solar panels produced in China. President Xi Jinping visited then Chancellor Angela Merkel right after the anti-subsidy investigation was announced. Subsequently, the issue was settled quickly, with the Commission withdrawing the case from the WTO. Based on this previous experience, China might prefer to take up the issue bilaterally, possibly with Germany again, rather than enter discussions with the Commission. But a major difference this time is the relative importance of the auto sector in the EU compared to solar power. The auto sector accounts for 14 million jobs in Europe and a good part of the EU’s exports. Exports of cars and components are heavily concentrated in a few EU countries, especially Germany. These exports to China have plummeted in 2023, with a close to 30% drop, and Chinese competition in third markets and even the EU market, has become much more intense. Third, also unlike the solar-panel probe, it is the Commission and not the sector being harmed that has filed the case. It will be harder for the Commission to withdraw the investigation because it would lose credibility. Merkel decided to accommodate Xi Jinping’s request in 2014 because she wanted to save the auto sector, even at the cost of hurting a smaller part of the German economy – the solar panel companies. The new investigation aims to protect the automotive sector. There could be consequences for major European auto companies producing electric vehicles in China, but jobs in Europe are now more important than the future of those companies in China. In any case, the future of European manufacturers is bleak; they seem to have already lost the EV race to their Chinese competitors. China will find it much harder to move the EU away from its decision to pursue an anti-subsidy investigation, differently to what happened in 2014. Lessons to learn There might be a lesson for Europe in what happened to Apple in China in September. Days before Apple’s launch of its new iPhone 15, Huawei launched its Mate 60 with upgraded functionalities which require high-end semiconductors. Beyond raising doubts about the effectiveness of US-led export controls on advanced semiconductors, this announcement constituted a direct challenge to Apple’s phone sales in China. Chinese officials were also prohibited from using iPhones and rumours spread in Chinese media in advance of the Apple launch about the underwhelming quality of the iPhone 15. Investors dumped Apple stock globally and the company lost about 6% of its value in a few days. China’s retaliation against the Commission’s anti-subsidy investigation might not be as direct and transparent, but it will still be harmful and might offer less room for the EU to respond. Europe’s strategic dependence on China is greater than in 2014 and this probe has the potential to cause a bigger fall-out for the EU. China has strengthened its position as a global power and uncompetitive behaviour could hit European core sectors harder because China has more power to retaliate. On the flip side, the stakes are higher for the EU given the importance of the auto sector in terms of jobs and exports. For that reason, China may not manage to deter the EU’s investigation as easily as it did in the past. But this may prompt China to threaten even larger retaliation.

BOTTOM LINE • Taiwan’s presidential election is scheduled for January 13, 2024. • A down-to-the-wire effort by two of the three opposition candidates to unite against front-runner William Lai Ching-te failed dramatically, while the third candidate made a grand last-minute exit. • Disarray among the opposition will not necessarily guarantee Lai’s election, with the latest polls showing him barely ahead of his two remaining challengers. • Both challengers, though averring their preference for a strong relationship with the United States, favor warmer relations with Beijing in a manner that may portend some degree of willingness to accept unification with China that would adversely impact US and Japanese security interests • Chinese efforts to influence the vote have included military intimidation, veiled threats of invasion, and disinformation. On Saturday, January 13, 2024, Taiwan will go to the polls to choose itsa next president and 113 seats in the country’s unicameral Legislative Yuan (LY). Current president Tsai Ing-wen is term-limited and at first four, now three, contenders are seeking to succeed her, making this the most contested election since 2000. What’s at Stake for the United States The United States is significantly involved in one war in the Middle East, another in Eastern Europe, and is hence at pains to avoid confrontation in Asia. It has sent two aircraft carrier groups and ammunition to support Israel as well as large quantities of weapons to the Ukrainian government, leaving concerns in both America and Taiwan about how much assistance it could give the country should Xi Jinping decide to attack. Given China’s avowed desire to annex the island by force if Taiwan’s citizens do not agree to unification amicably, and Beijing’s strong reaction to anything that it construes as moves to further legitimize Taiwan’s de facto independence, the Biden administration prefers a Taiwanese president who will avoid both actions that could prompt an attack and measures that would bring the island under Beijing’s control. More than democracy and human rights are at issue: Since Taiwan sits astride sea lanes that are vital for international commerce and security, ceding the country to China would enhance Beijing’s control of both. An estimated 40 percent of world trade passes through the South China Sea, which China has increasingly asserted its control over. Japan, a US treaty ally, has what is arguably an even greater stake in stability in the Taiwan Strait since a Taiwan under Chinese control would bring its territorial waters perilously close to Japan as well as potentially adversely impact the shipping that is so vital to its economy. China also contests control of areas of the East China Sea with Japan. Since Okinawa hosts the only US bases within 500 miles (the unrefueled combat radius of US fighters) from Taiwan, China might well strike those bases at the outset of a conflict. Japanese leaders have explicitly said that a Taiwan emergency is a Japanese emergency and therefore an emergency for the Japan-US alliance. The Dramatis Personae Lai Ching-te (English name William Lai) is Taiwan’s incumbent vice-president and the nominee of the Democratic Progressive Party (DPP). Born in 1959 and the son of a coal miner, he is a medical doctor with expertise in spinal cord injuries, though he has dedicated his later career to politics. Regarded as a lackluster campaigner, he can however point to his extensive record in office as a legislator, then premier, and most recently as vice-president. Hou Yu-ih, born in 1957 and the son of pork sellers, represents the Kuomintang (KMT) or Chinese Nationalist Party. After graduating from the Central Police Agency and obtaining a doctoral degree in crime prevention and corrections, he had a long career in law enforcement before becoming deputy mayor and later mayor of New Taipei City. Hou says that his background in police work is excellent preparation for service as president. Ko Wen-je, born in 1959, is a medical doctor known for his expertise in organ transplants before going into politics. Ko successfully ran for mayor of Taipei as an independent, though with the endorsement of the DPP. In 2019, Ko founded the Taiwan People’s Party (TPP) as a challenge to the KMT and DPP. Terry Gou (Chinese name Guo Tai-ming) was born in 1950. A late entry into the race and formerly a KMT member who twice sought and was twice refused the party’s endorsement for nominee, he then announced he would run as an independent backed by the $7 billion fortune he made as founder of Hon Hai Precision Industries. Hon Hai, known abroad as Foxconn, is the world’s largest contract manufacturer of electronics. His parents, from Shanxi, fled to Taiwan in 1949, with his policeman father having fought for the KMT during the war. Gou believes that his extensive business experience makes him ideally suited for the presidency. Where They Stand All candidates face the dilemma of having to solicit the support of voters who overwhelmingly reject unification with China while not antagonizing China with its oft-repeated vow to achieve the “sacred task” of unification by whatever means. A poll released in late November showed almost no support for this: only 0.7 percent of respondents replied that they supported independence as soon as possible with 11.5 percent advocating maintaining the status quo while working toward unification. By contrast, 35.8 percent supported maintaining the status quo while working toward independence and 44.3 percent favored forever maintaining the status quo. On other issues, as do politicians worldwide, they must be wary of making promises they will find difficult to deliver on if elected. Lai, who has previously described himself as an advocate of Taiwanese independence, is careful to qualify the statement by adding that, since Taiwan is already an independent sovereign state known as the Republic of China, there is no need for a declaration of independence. He has rejected the so-called 1992 Consensus and pledged to continue Tsai Ing-wen’s non-confrontational policies. The 1992 Consensus refers to the outcome of a meeting in Singapore between the allegedly unofficial representatives of the Chinese Communist Party and the KMT, which then governed in the name of the Republic of China. Members of the opposition party objected. The Consensus, a term that did not exist until 2000, eight years later, holds that each side agreed that there is but one China and that Taiwan is part of China, but that each side has its own understanding of what China is: for the CCP, it is the People’s Republic of China; for the KMT, it is the Republic of China. KMT supporters continue to accept the latter definition, while the opposition DPP reject it, arguing that Taiwan is a sovereign state independent of the PRC. In 2010, newly elected president Tsai Ing-wen offered a concession in that she accepted the historical fact of the conference, but Beijing immediately rejected it as “an incomplete test paper.” The only one of the four candidates to support gay marriage, which has been legal in Taiwan since 2019, Lai wore a rainbow-colored scarf and spoke at a large parade in October to celebrate the law, declaring that equal marriage was not the end but the starting point for diversity. None of the other three presidential candidates attended, although the KMT’s youth wing did, with its members shouting that their party also supported equality as they passed by Lai. Hou Yu-ih accepts the 1992 Consensus, though adds that he objects to both a formal declaration of Taiwan’s independence and China’s offer to rule the country under Beijing’s interpretation of the one-country, two-systems formula. In a Foreign Affairs article that was obviously aimed at a US audience, Hou stressed the importance of urging both sides of the Taiwan Strait to jointly promote democracy, human rights, and mutual trust. He accepts, however, the need for deterrence against invasion and that Taiwan must deepen collaboration with the United States in areas such as intelligence sharing and regular joint training exercises. Hou has vowed to defend the Republic of China if it were attacked. It is significant that he did not use the word Taiwan, thereby implicitly endorsing his party’s position on the One China policy. On healthcare, Hou has promised to raise spending levels on national health insurance to 8 percent from its current 6.5 percent. Observers were puzzled at his choosing to emphasize this policy against two rivals who are medical doctors. Lai immediately countered that rather than announce a spending target, Hou should explain specifically what areas should be targeted for improvement and then suggested several that he, Lai, would pursue. Ko Wen-je emphasizes his pragmatism and rationality. On cross-strait relations, he advocates a middle-of-the-road approach that is neither anti-China nor overly pro-China. Ko has called for regular security talks among senior officials from Japan, Taiwan, and the United States regarding China’s intimidation of Taiwan. He argues that cutting off communication with China increases the risk of war and has expressed willingness to sign economic agreements with Beijing while also advocating that Taiwan follow the United States in de-risking. Agreements would be reviewed and referred to the Legislative Yuan for ratification—a backhanded reference to former president Ma Ying-jeou’s effort to push through a trade agreement with China that aroused a massive protest and closed down the Legislative Yuan for weeks. Ko has called on China to propose a new framework for engagement with Taiwan that explains what Beijing has to offer, telling inquisitive foreign reporters that “it’s their obligation [to do so] not mine” and adding that Beijing must also define exactly what it means by One China, whether it be political or economic. While economic cooperation with China is negotiable, he claims that politically there is “nothing we can do,” though he has said elsewhere that confrontation can be eased through dialogue and cultural, sports, and economic exchanges. Ko has also proposed turning the small offshore island of Jinmen, also known as Kinmen, into an experimental zone for peace between Taiwan and China. Critics immediately pointed out that, apart from being unconstitutional, Ko has not explained whether he would countenance suspending Jinmen’s elections, regulating its residents’ freedom of speech due to Beijing’s censorship and insistence on “internet sovereignty,” or imposing social controls on them to conform with Chinese practice. Terry Gou, whose Foxconn has over a million employees in its factories in China, has denounced the Taiwan independence movement while calling for de-escalating Sino-American tensions. He accepts the 1992 Consensus and advocates positioning Taiwan as equidistant from both the United States and China. As of now, it is “like prey on a tightrope”: If either America or China increases tensions even a little bit, Taiwan “will die a horrible death.” Critics believe that Foxconn’s heavy presence in China would make him vulnerable to pressures from Beijing; Gou responded that he has not managed the company’s operations since 2019 and in fact resigned from Foxconn’s board of directors in September 2023. Denying that he has ever been controlled by China, Gou vowed to reply “yes, do it!” if Beijing threatens Foxconn’s assets. As if to test his mettle, two months later, China announced an investigation into the tax and land use of Foxconn subsidiaries in several provinces, without supplying details. Foxconn management replied that it would “actively comply” with the investigators. Gou is an avowed opponent of gay marriage. Now no longer formally a candidate, he has vowed to keep advocating for these policy views. Taiwan does not possess indigenous fuels, so the energy issue is highly controversial. Opponents of nuclear energy argue that a Fukushima-type meltdown would devastate the much smaller and similarly earthquake-prone island. Proponents point out that without nuclear power, Taiwan would become still more vulnerable if it completely depended on imports to keep its heavily trade-dependent economy healthy. Due to a 2016 government decision to phase out nuclear power by 2025, usage has declined from over 20 percent to about 9 percent at present. Most citizens voted in 2021 to reject finishing a partially built plant whose completion has been suspended for three decades. Only Lai has vowed to make Taiwan a nuclear-free country by 2025, although he has not ruled out retaining some nuclear capability in case of emergencies like a Chinese invasion or blockade. All three other candidates claim that the nuclear-free homeland policy has failed, with Hou explicitly saying that he would revive nuclear power, including restarting two already decommissioned units, extending the operational period of a third, and evaluating whether to revive an abandoned fourth nuclear power plant. While warning of power shortages, no candidate has addressed the questions of safety or of finding a long-term solution for storing nuclear waste. Who’s Ahead? Taiwan, perhaps one of the most extensively polled countries in the world, has so many organizations collecting data that the Taiwan News regularly reports a poll of polls. Lai has been the consistent front-runner. Except for briefly exceeding 40 percent after a stopover trip to the United States en route to Paraguay, he until recently polled in the mid-thirties, with Ko and Hou in the mid-to-high twenties and Guo in the low teens. But Lai’s lead has been eroding. More concerning to the DPP, at the end of October Ko and KMT head Eric Chu reached an uneasy agreement—notably, Hou was not present— to share candidates in some constituencies in order to get a majority in the Legislative Yuan. If this succeeds and Lai is elected, the coalition could block Lai’s initiatives, leading to gridlock, as indeed happened during Chen Shui-bian’s presidency. It would also encourage Beijing to court them, as it has done during previous DPP administrations. Since the DPP has been in power for eight years, it has a track record that its opposition and non-committed voters can criticize. Rural citizens interviewed by a Canadian researcher believe that the party has forgotten about them while urbanites complain about inflation and lack of affordable housing and point out that wages have remained stagnant despite healthy growth rates. The youth vote, which had previously been a mainstay of DPP strength, has shown signs of shifting to the TPP. Many, including supporters of the party, believe that a social justice program is badly needed. They accuse the DPP of positioning itself as a progressive party but not behaving like one, urging it to enact policies that meaningfully tax the rich and invest the money in green technology, infrastructure, and innovation. The opposition has said that a DPP victory would mean war with China. Chinese Efforts to Influence the Election Beijing’s least favorite candidate is surely Lai. Rather than overtly interfere, a strategy that backfired badly in the 1996 election, it has tried a mixture of sticks and carrots. Sticks include Chinese fighter jets so regularly crossing the median line in the Taiwan Strait that a new normal now exists, ominous warnings from high military figures, and covert attempts such as disinformation. Carrots include hosting youth delegations to visit China, and a plan to make Fujian province a zone for integrated development with Taiwan, including encouraging Taiwanese firms to list on Chinese stock exchanges and supporting innovative ways of cross-strait capital cooperation. Entry and exit visas for “Taiwan compatriots” are being eased. While such initiatives are above board, some others are not. In late October, Taiwan’s Ministry of Justice Investigation Bureau seized $354.6 million in illegal remittances to candidates regarded as sympathetic to China. Among the conduits were businesspeople, contributions to temple charity events, dummy accounts through unregistered banks, and cryptocurrency. It is difficult to tell how successful these tactics are, with anecdotal evidence indicating that while some people are intimidated by China’s threats, others respond negatively. Taiwanese are well aware of the fate of Hong Kong, where the party-state ruthlessly quashed civil liberties in contravention of the promises it was treaty-bound to honor and often used as a cautionary tale to those few who view unification more favorably. Unexpected Last-Minute Developments At the meeting to discuss cooperation on fielding candidates for the Legislative Yuan, Ko and Hou also discussed having one of them agree to become vice-president while the other would be the presidential nominee. Assuming—a big if—that most of the supporters of one would agree to vote with supporters of the other, they would comfortably beat Lai. The possibility of an alliance at the top was always risky: In addition to each man having a healthy ego that would make subordinating himself to the other difficult, Ko was on record as saying that the things he hates most are “mosquitoes, cockroaches and the KMT.” He founded the TPP as a counterweight to both KMT and DPP, attracting many supporters, particularly among the young, who were disenchanted with the two. While some of the young voters might accept an alliance, others would likely feel betrayed. Whether Ko or Hou would get top billing, they pledged to abide by the opinion polls on who was the stronger. After much discussion, the two settled on accepting six of the nine major polls, but then disagreed on who was ahead based on differing interpretations of the margins of error. Former president Ma Ying-jeou then stepped in to mediate, summoning Ko and Hou to his office on November 24, the deadline for filing for the election. Only Hou appeared, waiting several hours fruitlessly. Ko later agreed to meet at a hotel and even then arrived late as a gaggle of media waited impatiently outside. The result was a dramatic failure with the candidates sniping at each other live on the country’s television networks: They will run separately. The event even upstaged Terry Gou’s also dramatic departure wherein the typically flamboyant Gou announced that although he “might be forgotten by the people,” he had chosen to sacrifice himself for the greater good, showing his “utmost dedication to his homeland.” With barely five weeks before the election, analysts have scrutinized the newly announced vice-presidential picks of the remaining three candidates. Lai has chosen Hsiao Bi-khim, the highly regarded woman who has served as Taiwan’s de facto ambassador to Washington for the past several years. But whether and by how much the choice will increase Lai’s popularity remains to be seen. Beijing has denounced Hsiao as a “diehard secessionist” and says the decision could “mean war for Taiwan,” which could scare some voters. Asked about this at a television interview soon after her selection, Hsiao responded carefully, saying that all Taiwanese reject war and that any candidate “must approach [relations with China] with utmost responsibility.” Hou’s choice for vice-president, the avowed pro-unificationist media executive Jaw Shaw-kong, also has negatives as well as positives. Presumably chosen to appeal to the KMT’s conservative base, Jaw is apt to alienate more moderate KMT members and voters who fear unification. His more assertive personality and markedly different view of unification raise the possibility of friction between him and Hou. Kou’s vice-presidential pick, Cynthia Wu, is likewise problematic. With very little political experience, she has been an executive of a family-founded major life insurance company that has been fined for speculation and questionable land deals. This undercuts the TPP’s claim to be the party that represents the interests of the young and underprivileged. Meanwhile, polls show Lai’s lead over Hou shrinking to about one point, with Ko less than four points behind Hou. At this point, the election is too close to call. Expect the Unexpected? Should it have to live with Lai, Beijing’s least bad scenario would be a divided Legislative Yuan, which would enable it to work with the opposition, as it also has done with previous DPP-led administrations. Assuming, as is likely, that Lai can be trusted to keep his promise to continue his predecessor’s nonconfrontational policies, he is certainly Washington’s preferred candidate. But, as evidenced by the events of the past few weeks, Taiwan’s politics are full of surprises: Neither the United States nor China can be sure that the election will go in its preferred direction. Dealing with democracies is inherently uncertain, for both autocracies and other democratic countries.

Was the balloon that suddenly appeared over the US last week undertaking surveillance? Or was it engaging in research, as China has claimed? While the answers to these questions may not be immediately known, one thing is clear: the incursion of the Chinese balloon tested the bounds of international law. This incident has also added another layer of complexity to the already strained relations between the US and China. US Secretary of State Antony Blinken’s planned visit to Beijing has been postponed. And China has reacted to the shooting down of the balloon with diplomatic fury. Both sides have long disagreed over the presence of US warships in the South China Sea and Taiwan Strait, which China claims as its own waters and the US considers international waters. Will the air be the next realm to be contested by the two superpowers? A long military historyHot air balloons have a somewhat benign public image. But they also have a long military history that extends back to the Napoleonic era in Europe during the late 18th century and early 19th century when they were used for surveillance and bombing missions. The early laws of war even included some specific measures designed to address the military use of balloons during armed conflict. The modern military significance of balloons now appears to be understated, especially in an era of uncrewed aerial vehicles or drones, which have proven effective during the current Ukraine war. However, while balloons may no longer be valued for their war-fighting ability, they retain a unique capacity to undertake surveillance because they fly at higher altitudes than aircraft, can remain stationary over sensitive sites, are harder to detect on radar, and can be camouflaged as civilian weather craft. Who has sovereignty over the air?The international law is clear with respect to the use of these balloons over other countries’ airspace. Every country has complete sovereignty and control over its waters extending 12 nautical miles (about 22 kilometres) from its land territory. Every country likewise has “complete and exclusive sovereignty over the airspace above its territory” under international conventions. This means each country controls all access to its airspace, which includes both commercial and government aircraft. But the upper limit of sovereign airspace is unsettled in international law. In practice, it generally extends to the maximum height at which commercial and military aircraft operate, which is around 45,000 feet (about 13.7km). The supersonic Concorde jet, however, operated at 60,000 feet (over 18km). The Chinese balloon was also reported to be operating at a distance of 60,000 feet. International law does not extend to the distance at which satellites operate, which is traditionally seen as falling within the realm of space law. There are international legal frameworks in place that allow for permission to be sought to enter a country’s airspace, such as the 1944 Chicago Convention on International Civil Aviation. The International Civil  Aviation Organization has set an additional layer of rules on airspace access, including for hot air balloons, but it does not regulate military activities. The US also has its own “air defence identification zone”, a legacy of the Cold War. It requires all aircraft entering US airspace to identify themselves. Canada has its own complementary zone. During the height of Cold War tensions, the US would routinely scramble fighter jets in response to unauthorised Soviet incursions into US airspace, especially in the Arctic. Many other countries and regions have similar air defence identification zones, including China, Japan and Taiwan. Taiwan, for instance, routinely scrambles fighter jets in response to unauthorised incursions of its airspace by Chinese aircraft.Testing the waters – and airSo, given these clear international rules, the US was on very firm legal footing in its response to the Chinese balloon. Overflight could only have been undertaken with US permission, which was clearly not sought. China initially attempted to suggest the balloon malfunctioned and drifted into US airspace, claiming force majeure. If the balloon was autonomous, it would have been entirely dependent on wind patterns. However, a report in Scientific American said the balloon appeared to have a high level of manoeuvrability, especially when it appeared to linger over sensitive US defence facilities in Montana. Washington displayed a lot of patience in dealing with the incursion. President Joe Biden authorised military jets to shoot down the balloon, but it took some days before that could be done safely without endangering lives on the ground. The balloon incident has clearly tested the Biden administration and the US response to China’s growing military assertiveness. Similar events occur on a regular basis in the South China Sea, where the US Navy conducts freedom of navigation operations through Chinese claimed waters. The US presence is vigorously challenged by the Chinese Navy. China has also responded aggressively to the presence of US reconnaissance planes over the South China Sea, raising the risks of an accident that could spark a wider conflict. What is remarkable about the balloon incident is China has asserted its physical presence well within America’s sovereign borders. How both sides respond in the aftermath will determine whether China-US tensions worsen further and if we can expect potential future provocations between the two sides in the air, as well as at sea.

Another important event on the international agenda was the Second Forum of Think Tanks "China + five countries of Central Asia", organized by: the Institute of Russia, Eastern Europe and Central Asia of the CASS, the Kazakhstan Institute for Strategic Studies under the President of the Republic of Kazakhstan, the National Institute for Strategic Studies under the President of the Kyrgyz Republic Republic, Center for Strategic Studies under the President of the Republic of Tajikistan, Institute of International Relations of the Ministry of Foreign Affairs of Turkmenistan, Institute for Strategic and Interregional Studies under the President of the Republic of Uzbekistan. The connecting link for all forum participants was the Chinese Academy of Social Sciences (CASS) with the support of the Institute of Russia, Eastern Europe and Central Asia of the CASS, the Secretariat of the Council of High-Level Think Tanks of the CASS and the All-China Association for the Study of Russia, Eastern Europe and Central Asia. The two-day program of the forum, which was held in a hybrid mode with a central communication platform in Beijing, included speeches of the heads of the above-mentioned structures, diplomatic missions, foreign ministers, the Secretary General of the Shanghai Cooperation Organization, who considered the most important issues on the “agenda” dedicated to the search for new ways and formats for joint development. The experts focused on various topical aspects, presenting their vision of how China's relations with each of the states of Central Asia and the region as a whole should develop at the present stage. As for our country, the rector of the Institute of International Relations of the Ministry of Foreign Affairs of Turkmenistan, Djumamurad Gurbangeldiyev, spoke about the state and prospects of Turkmen-Chinese cooperation, in particular, noting that the peaceful foreign policy successfully pursued under the leadership of President Serdar Berdimuhamedov, gaining momentum, contributes to the achievement of new frontiers in the system of international relations by Turkmenistan. In the modern era, the whole world respects the legal status of Turkmenistan's neutrality with great respect. Among the priority areas of the peace-loving policy and diplomacy implemented under the leadership of the head of state, a special role is given to relations with the states of the Asia-Pacific region. The People's Republic of China is one of the friendly partner states of Turkmenistan. The Turkmen and Chinese people are connected by historical, spiritual and cultural ties that originate from the depths of centuries. These common historical roots, the bonds of friendship that go deep into history, form the basis of the Turkmen-Chinese interstate cooperation, in which a special place is given to interaction in the scientific and educational sphere. An important role in the formation of new approaches of the parties to topical issues of international relations and cooperation between the states of the region with China is played by the accumulated experience in this area and the First Forum of Experts of Analytical Centers "China + Five Central Asian Countries" held in November 2021. The broad horizons for the development of partnership that are currently opening in accordance with the realities of modernity form new areas of cooperation between Turkmenistan and China. This is clear evidence of the success of our country's foreign policy strategy. The head of the Higher School of Diplomacy of Turkmenistan also focused on the fact that Hero-Arkadag, in his speech at the China + Five Central Asian Countries Summit held in January 2022, emphasized that it is the heads of states of Central Asia who are widely promoting strategically important proposals and initiatives for issues of world politics. In this context, it was emphasized that Central Asia is a region that attracts the attention of the whole world due to its huge natural resources and advantageous geographical location. In the system of international relations, the importance of the Central Asian region is growing due to the presence of large reserves, especially energy resources, favorable geopolitical and geo-economic advantages. At the end of the 20th century, the number of states interested in including the countries of Central Asia in the orbit of cooperation increased. This is confirmed by the fact that in the last 20 years the phrase "Central Asia +" has become widely used in political terminology. And the People's Republic of China, one of the first states that showed interest in this format, has the largest economy in the world, a great influential force in world geopolitics. The head of the Turkmen university, noting the features of the main directions of China's policy, emphasized that the foreign policy of the Celestial Empire, aimed at becoming a developed state of the world and based on ancient Chinese principles, implies the interest of this country in increasing influence in the world through cooperation. In supporting the international initiatives of the Central Asian countries aimed at ensuring peace, security and sustainable development in the region, the political assistance of China, which is a permanent member of the UN Security Council, is very necessary. The states of Central Asia are cooperating in the field of consolidating efforts in the field of security and countering terrorism with the Shanghai Cooperation Organization, established at the initiative of China. The speech also noted that the partnership of the countries of Central Asia with the People's Republic of China in the effective implementation of the new philosophy of the Hero-Arkadag "Dialogue is a guarantee of peace" in international life, aimed at eliminating the mutual distrust that has spread today in international relations, was of particular importance. It is no coincidence that energy is the key vector of the partnership between China + the five countries of Central Asia. As you know, a powerful Chinese economy requires a significant part of its energy capacities to be imported from outside. China attaches particular importance to Central Asia in providing its rapidly developing economy with guaranteed energy sources. In this context, a great success of Turkmen and at the same time Chinese diplomacy is the Turkmenistan-China gas pipeline project, built on the initiative of Hero-Arkadag in a very short time - just over two years - has become another clear evidence of Turkmenistan's commitment to the principle of using its energy resources for the benefit of all mankind. The development of the transport sector is also important. If China stands at the origins of the creation of the Great Silk Road, then Turkmenistan is its heart, the driving force. Within the framework of cooperation in the "China + five countries of Central Asia" format, given the new geopolitical, geo-economic reality of the III millennium, great importance is attached to the revival of the Great Silk Road. The project of the Hero-Arkadag "Revival of the Great Silk Road", designed to give a powerful impetus to the economic development of Eurasia, is closely interconnected in its philosophy and geo-economic content with the all-China project "One Belt - One Road". The already implemented and ongoing multilateral transport and transit projects coincide with the interests of the China + five countries of Central Asia interaction format. Continuing the topic related to the “China + five countries of Central Asia” format as a factor of strategic and regional stability, ensuring the sustainable development of friendly states in the new conditions, I would like to recall that at the beginning of the 2000s, many similar platforms for interaction appeared and took shape in the world. Nevertheless, in my opinion, as time and the realities of life have shown, today the China + Five Countries of Central Asia Project is one of the most famous, authoritative, multilateral formats with great prospects for development. And this is natural and logical, since the ties between the peoples of the Central Asian region and China have a long history. In the process of their long communication, a huge and unique experience of interaction, good neighborliness, exchange of knowledge and achievements in all areas of human life was accumulated. The Great Silk Road passed through the territory of Central Asia from China, which, by developing trade relations between countries, already then demonstrated the possibility of maintaining an atmosphere of calm and stability to the world, including in the territory of present-day Central Asia. And today we can say with full confidence that it was the reliance on this outstanding heritage, the continuity of historical destinies, that was embodied when the countries of the region, having gained independence, resumed active all-round relations with the People's Republic of China. Without a doubt, the current cooperation of all the countries of the region has a noticeable constructive impact on the provision of global peace and stability. It is based on the closeness and coincidence of approaches to fundamental issues on the global agenda. Together we stand for equality and justice in international affairs, respect for territorial integrity and non-interference in the affairs of sovereign states, for the implementation of the Sustainable Development Goals, we support the measures taken by the world community to effectively counter international terrorism, extremism and other challenges. Not so long ago, the states of the region celebrated the 30th anniversary of diplomatic relations with China. 30 years of mutual trust, friendship and close cooperation have shown that by adhering to the basic principles of mutual respect, good neighborliness, friendship, mutual assistance and mutual benefit, China and the countries of Central Asia have been able to build healthy and effective interstate relations of a new type. Today, the world is undergoing changes not seen in a century. The structure of international politics and economics is undergoing profound changes and needs to be adjusted. Geopolitical conflicts, disordered global governance create new challenges for development both globally and regionally. Under these conditions, the presence of objective mutual interests of the Central Asian countries and China in line with the China + Five Central Asian countries partnership format on a practical basis opens up additional opportunities for increasing the pace of effective cooperation. Using their huge potential, the countries of this alliance set a course for the modernization of the mechanism of mutual cooperation in the format "China + five countries of Central Asia". It from the moment of its appearance as a specific body for the comprehensive rapprochement of the Central Asian countries, has been and remains an important factor in the stable development of the region. Further cooperation within its framework will improve the well-being of the peoples and significantly raise the standard of living. I am sure that all the states of the region, using their authority and established cooperation mechanisms, will be able to make an important joint contribution to establishing a new agenda of peace and trust in international affairs, reducing tension, de-escalating conflicts, moving to dialogue and negotiation methods for resolving disputes and contradictions based on the UN Charter.

IntroductionDuring a break in the COVID-19 pandemic, the foreign ministers of China, Russia, Japan and the United States boosted Mongolia into international headlines. Returning from the Shanghai Cooperation Organization meeting in Moscow, for instance, Chinese Foreign Minister Wang Yi stopped in Ulaanbaatar (15–16 September) with a message: Do not take sides with China’s competitors if Mongolia wants to rely on the Chinese economic powerhouse. Within the week, Mongolian Foreign Minister Enkhtaivan Nyamtseren was invited by Russian Foreign Minister Sergey Lavrov to meet on short notice. Even though the ministers jointly announced the finalization of a treaty on the permanent comprehensive strategic partnership, the Kremlin showed its will to lead trilateral economic projects (such as a gas pipeline) with China and impose the Eurasian Economic Union agenda on Mongolia. Then on 29 September, the United States Secretary of State Michael Pompeo announced the inclusion of Mongolia in his trip to visit allies in East Asia—Japan and the Republic of Korea.2 Although the trip was ultimately cancelled due to an outbreak of COVID-19 cases among White House officials, Pompeo talked by telephone with President Battulga Khaltmaa and highlighted their shared commitment to democracy and regional security. A few days later, Japanese Foreign Minister Toshimitsu Motegi, considered a key insider of then Prime Minister Shinzo Abe’s geopolitics, flew to Ulaanbaatar. In addition to updating the strategic partnership plan until 2022, the Japanese Foreign Minister’s interests centred on Mongolia’s inclusion in the Free and Open Indo-Pacific strategy. Mongolia has declared strategic partnerships with each of these great powers and is thus entering a complicated geopolitical setting. It is not entirely new. A similar scene occurred in the summer of 1991. Chinese President Yang Shangkun, Japanese Prime Minister Toshiki Kaifu and the United States Secretary of State James Baker each visited Mongolia within a month’s time. China wanted agreement to non-interference in its internal affairs, whereas Japan and the United States imposed non-reversal conditionality on Mongolia’s democratic transition to receive much-needed economic assistance. The primary difference then was the absence of Russia. This policy paper discusses the renewed geopolitical rivalries of the great powers, explains Mongolia’s challenges to manoeuvring in this tough geopolitical terrain and then proposes pursuit of a pragmatic, neutral foreign policy option similar to Finland’s strategic concessions to its neighbouring great power, the Soviet Union.Renewed geopolitical rivalriesThe great power competition also is nothing new. Even after the Cold War, China, Japan, Russia and the United States were watching each other suspiciously while avoiding unnecessary tension. In the 1990s, policymakers and academics in Japan, Russia, and the United States debated over the China threat and the consequences of China’s economic rise. Russian leaders, such as Foreign Minister and later Prime Minister Yevgeny Primakov and President Vladimir Putin, sought ways to balance with the United States and to integrate into the European economic and security framework. It was not a surprise when Putin hinted at Russia’s inclusion in the North Atlantic Treaty Organization (NATO) because the country was already supporting American military operations in Afghanistan. Similarly, in 2000, the United States Congress mandated its Defense Department to report annually on China’s security strategy and military development. China and Japan had similar outlooks. China was wary of the United States, whereas Japan remained vigilant of both China and Russia. In the mid-2000s, all these countries reassessed their long-term geopolitical and economic objectives as the geopolitical setting began to shift. With similar geopolitical concerns about American strategies, China and Russia advanced their partnership by conducting an annual joint military exercise (Peace Mission, beginning in 2005) and even demanded the withdrawal of American forces from Central Asia. When the United States proposed another round of NATO’s expansion into Ukraine and Georgia and new missile defence systems in the Czech Republic and Poland, Russia quickly reacted. This resulted in a brief military conflict with Georgia in 2008. Following the breakdown with Europe, Russia began pursuing policies to reassert its influence in former Soviet republics through the Eurasian Economic Union as well as the Collective Security Treaty Organization. China and Russia jointly strengthened the Shanghai Cooperation Organization and created a new bloc with Brazil, Russia, India and South Africa (BRICS) for collaborating on major geopolitical issues. From 2012, the great power rivalries intensified. Chinese President Xi Jinping renounced the “hide and bide” principle of Deng Xiaoping by pledging that China would take an active role in global politics. A year later, China unveiled a new grand strategy, known as the Belt and Road Initiative (BRI), to invest in infrastructure that increases global connectivity. Chinese leaders explained that the BRI is a “win–win” developmental initiative. The ambitions and ambiguity of the BRI, however, immediately raised geopolitical concern from all the great powers, as if China was about to reshape the global and regional order for its geopolitical advantage. For example, building on its earlier strategy (Pivot to East Asia), the United States launched a series of measures to contain China. It endorsed Japanese Prime Minister Shinzo Abe’s quadrilateral security dialogue (for the alliance of Japan, India, Australia and the United States) and strengthened ties with India, Myanmar, Singapore and Vietnam, all of whom are cautious of China’s economic and military powers. Meanwhile, in 2014, Russia annexed Crimea and intervened in Eastern Ukraine, based on its geopolitical concerns for Ukraine’s potential membership in NATO. Then, in 2015, Russia deployed its military to Syria to check the United States’ interventions while declaring its strategic partnership with China. In response, the United States cited China and Russia as the biggest threats in its National Defense Strategy (2018), which is the country’s long-term strategic defense document.6 The American Defense Department released its Indo–Pacific Strategy Report, and the State Department defined its Free and Open Indo–Pacific vision. Both documents prioritized containing China’s growing economic and military power in the Indo–Pacific region. In addition to sanctions against China and Russia, the United States pressured its allies to ban Chinese telecommunication companies from participating in the development of the 5G network. In contrast, Russia welcomed the Chinese telecommunication giant—Huawei—to develop its 5G network and pledged to develop Chinese missile defence capabilities. This new round of great power rivalries is changing the geopolitical setting for a small State like Mongolia.Challenges for MongoliaThe primary challenge for Mongolia is to maintain its sovereignty. For centuries, geography has dictated the country’s fate as a classic buffer State between two expansionist and rival great powers—China and Russia. While serving the Kremlin’s geopolitical interests from 1921 to 1986, Mongolia gained United Nations membership and its independence from China. During this period, Mongolia remained under close control of the Kremlin and became a militarized buffer State whenever Russian geopolitical interests were threatened. The Kremlin deployed its military three times: in 1921, 1936 and 1960. Following the Sino– Soviet rapprochement and the collapse of the Soviet Union, Mongolia normalized its relations with China and developed new ties with the United States and its allies. In the 1990s, Mongolia did not experience any geopolitical pressure from the great powers and firmly declared a series of neutrality policies. At the time, Mongolia’s two neighbours were preoccupied with maintaining their domestic matters and also coping with security concerns elsewhere. The United States and Japan focused on Mongolia’s political and economic transition while explicitly avoiding developing security ties. In that period, Mongolia adopted a series of neutrality policies: the constitutional prohibition on foreign military transition and basing, a non-aligned foreign policy stance, declaration of a nuclear weapon-free zone and bilateral treaties with all the great powers, with a “against no third party” principle. In this favourable geopolitical context, Mongolia increased Its engagement with international and regional organizations and sought ways to attract the interests of so-called “third neighbours”. The most important endeavour was its military deployment in support of American operations in Iraq, when China and Russia were strongly opposing the United States war in Iraq. Then, Mongolia deployed its military to Kosovo and Afghanistan. This military contribution resulted in close political and defence ties with the United States and NATO members as of 2003. The other endeavour was the conclusion of an investment agreement with Anglo–Australian mining giant Rio Tinto and Canadian Ivanhoe Mines to develop the Oyu Tolgoi copper and gold deposit. These endeavours triggered reactions from China and Russia. China’s security experts cautioned Mongolia’s inclusion in the American “strategic encirclement” of China, whereas Russia was wary of losing its geopolitical privileges in Mongolia to NATO members. China and Russia jointly pressured Mongolia to join the Shanghai Cooperation Organization. As a result, Mongolia became an observer in 2005. Since then, Russia has taken assertive action to secure its geopolitical and geo-economic interests in critical areas such as railway construction, the energy sector and uranium mining. To be clear, neither China nor Russia attempted in this period to influence Mongolia’s domestic politics, especially its elections. Now all these great powers want to include Mongolia in their competing geopolitical visions. China declared a comprehensive strategic partnership in 2014 and included Mongolia as one of six economic corridors of the BRI. Beijing leaders hope that Mongolia will join the Shanghai Cooperation Organization to fulfil its regionalization strategy of Central Asia. They also want Mongolia to commit to non-intervention in its internal affairs, especially in matters related to Tibet, Xinjiang, Hong Kong, Taiwan and Inner Mongolia, in return for economic assistance and market access. In 2019, Russia quickly upgraded its strategic partnership with conclusion of a permanent treaty, which imposed Mongolia’s adherence to the Russian geopolitical agenda. Specifically, the treaty prioritizes bilateral consultations, renews defence technical cooperation and requires Mongolia’s adherence to the 1,520 mm (Russian standard railway gauge) for the railway extension. As hinted by some Russian officials, the Kremlin even dreams of Mongolia’s inclusion in the Eurasian Economic Union and the Collective Security Treaty Organization, considering how Mongolia is traditionally wary of Chinese expansion. The United States and Japan have included Mongolia in their Free and Open Indo–Pacific strategy because Mongolia shares similar values (democracy, human rights) and security concerns regarding China and Russia. Interestingly, the American Pentagon’s Indo–Pacific Strategy (June 2019) identified Mongolia as a “reliable, capable and natural partner of the United States,” while designating Mongolia’s two neighbours as the biggest security threats: China as a revisionist power and Russia a revitalized Malign Actor. The American State Department’s Free and Open Indo–Pacific visionary document highlights Mongolia as one of the beneficiaries and supporters of its strategy. Japan also included Mongolia in its Partnership for Quality Infrastructure (PQI), a developmental assistance alternative to China’s BRI, and designated a new international airport and railway flyover (Sun Bridge) in Ulaanbaatar as PQI projects. Like many small States, Mongolia’s challenge is determining how to manoeuvre in this round of great power competitions without compromising its sovereignty and undermining its institutions of democratic governance.Options for MongoliaIdeally, the best option for Mongolia is to maintain friendly ties with all the great powers and to benefit economically as it sits at the merging point of different geopolitical strategies. In fact, this has been the case to a certain degree. Mongolia’s nuclear weapon-free zone status has been endorsed by all permanent members of the United Nations Security Council. The country’s peacekeeping efforts, whether military deployments or hosting training events, have been supported by all the involved great powers. Both China and Japan have aided in road development, such as with the Chinese-built Moon Bridge (BRI funding) and the Japanese Sun Bridge (PQI project) in the capital city. At the moment, China and the United States are assisting to improve the capital city’s water supply and infrastructure. Hopefully, China and Russia will construct a natural gas pipeline through Mongolia, which would increase trilateral economic cooperation. Current trends, however, force a consideration of the likelihood of consequences in the worst- and best-case scenarios. The most likely worst-case scenario has China alone or together with Russia entering into conflict with the United States. This circumstance would force Mongolia to limit its relations with the United States and even to stand with its neighbours against the United States and its allies. The other worst-case scenario, which is less likely at the moment, is the emergence of Sino–Russian geopolitical tension. This would create the direst situation, in which Mongolia could easily fall into the control of either neighbour or become a battleground. The best-case scenarios are also possible and would create a favourable overarching setting for Mongolia to manoeuvre and maintain its sovereignty. The best-case scenarios have all the great powers seeking strategic stability because they are intertwined with domestic challenges or geopolitically distracted elsewhere. In all these scenarios, the primary objective for Mongolian leaders would remain the same—to maintain sovereignty and independence. However, Mongolia’s options to maintain its sovereignty are limited. First, it is a regionless country. Therefore, it cannot rely on any regional security alliance, such as NATO or the Collective Security Treaty Organization. The only close alliance is the Shanghai Cooperation Organization, but Mongolia is wary of jeopardizing its sovereignty if it joins. Second, it is impossible for leaders in Ulaanbaatar to gain security guarantees from one or several of the great powers, with the possible exception of Russia. Leaders in Washington and Tokyo are not likely to make any such deal as with the Philippines or Taiwan. Mongolia is too cautious of losing its sovereignty to Russia and provoking China by renewing the mutual defence clause with Russia. Lastly, Mongolia is too economically poor to build its defence capabilities in a way that is similar to Singapore, Switzerland and the Democratic People’s Republic of Korea. Therefore, the most suitable option would be to make strategic concessions to the great powers following the example of the Finnish experience during the Cold War. This option requires that Mongolia avoid joining in the security alliance of any great power, just as Finland avoided joining NATO and the Warsaw Pact. In this sense, Mongolia should not attempt to upgrade its current level of confidence-building security defence relations with members of NATO, the Collective Security Treaty Organization and, potentially, the Shanghai Cooperation Organization (if it turns into a regional security organization). In regard to the Free and Open Indo– Pacific, Mongolia should limit its security cooperation to specific areas: peacekeeping, humanitarian assistance, disaster relief and defence diplomacy. This type of neutrality policy would also require Mongolia to abstain from taking any stance on controversial matters related to its neighbours and their geopolitical competitors. Such avoidance would help Mongolia to promote itself as a neutral place for all great powers to negotiate, such as the Finnish model of the Helsinki process. At the same time, Mongolia should strengthen its democratic governance: the parliamentary system, civil society and the rule of law. Democratic governance would distinguish Mongolia’s identity within the authoritarian great powers and ensure self-rule free from those great powers. One of the downsides of this type of neutral, pragmatic strategy, however, is its limit on participation in foreign policy decision-making processes. This requires that only professional diplomats handle foreign policy matters while encouraging informed public discourse. In return for this neutral policy, Mongolia would expect the great powers to respect its sovereignty and restrain any actions to influence its policies.ConclusionWhen the foreign ministers of the great powers gave some attention to Mongolia in the fall of 2020, Mongolia reacted with proactive diplomacy amid the pandemic. On 29 February, Mongolian President Battulga became the first foreign dignitary to visit China during the pandemic and extended a gift of 30,000 sheep as a goodwill gesture. On 21 June, the Mongolian airline, MIAT, conducted a long-awaited flight to North America and delivered more than US$1 million worth of assistance and 60,000 personal protective equipment to the United States. On June 24th, despite Russia having the second highest number of coronavirus cases, the Mongolian military marched in the Victory Day Parade, marking the 75th anniversary of the Soviet victory in the Second World War, in which Mongolia stood as a close ally. As with the proactive diplomacy, the renewed geopolitical tensions among the great powers will require unity, patience and deft diplomacy from Mongolian leaders to steer through the rough sea.

AnnotationThe article is devoted to the analysis of Japan’s policy amidst growing competition between the United States and China in the Indo-Pacific region. It assesses the Japan’s place in US strategy to contain China in the economic and political spheres. Particular attention is paid to the events that took place in 2021, the first year of the Biden administration in the US.  The Biden administration, which came to the White House on January 20, 2021, immediately announced a course of rivalry with China. In his very first foreign policy speech, the 46th President of the United States called the PRC the most serious rival of the United States, declared his desire to rebuff "the growing ambitions of authoritarian China, challenging American leadership". The U.S. Interim National Security Strategy Guide, published in March 2021, called China “the only competitor with the potential to combine its economic, diplomatic, military, and technological might to mount a sustained challenge to a stable and open international system”. The Biden administration's course of confronting Beijing also included countering Chinese illegal trade practices, cybercrime, and countering Beijing's so-called coercive economic measures that undermine the competitive advantage of the American economy. At the same time, Joe Biden, unlike his predecessor D. Trump, who pursued a policy in the spirit of “America first”, promised to rely on allies and partners in the implementation of his international policy. The Interim Strategic National Security Guide of the United States called the American allies “the most important strategic resource”, allowing them to act as a united front against global and regional rivals, including China. The United States promised to reaffirm and strengthen its commitment to alliances in Europe and the Indo-Pacific region, and to encourage allies to develop their military and political capabilities to counter common current and future threats. Japan, the most important military and political ally of the United States in the Indo-Pacific region (ITR), supported Joe Biden's course of rivalry with China on a wide range of issues. At the same time, the growing competition between Washington and Beijing is challenging Tokyo's national interests, forcing it to revise the key parameters of its economic and foreign policy strategy and adapt it to changing international political conditions.Military-political sphereIn 2021, Japan began coordinating its PRC strategy with the new American administration. On March 16, Tokyo hosted the first meeting of the new heads of the US Foreign and Defense Departments — A. Blinken and L. Austin — with their Japanese counterparts, which took place in the 2+2 format. Following the meeting, the parties stated that China's activities in the political, economic, military and technological spheres pose a challenge to the Japan-US alliance and the entire world community when they do not comply with the existing international order. The ministers announced their determination to resist Beijing's actions if they put pressure on regional players or destabilize the situation, which undermines the "rules-based" international system. During Biden's first Japan-US summit in Washington on April 16, 2021, the parties expressed concern about China's behavior that violates international order, including the use of economic and other forms of coercion. In addition, J. Biden and Y. Suga spoke out against China's territorial claims in the South China Sea, and also expressed concern about the human rights situation in Hong Kong and the Xinjiang Uygur Autonomous Region of China. For the first time in 52 years (since 1969), the leaders of Japan and the United States mentioned the "Taiwan issue" in a joint statement: they declared the importance of peace and stability in the Taiwan Strait and expressed concern about the current situation around Taiwan. A desire was declared to develop cooperation between Washington and Tokyo on the basis of universal values and common principles. The parties also stressed the need for deterrence to maintain peace and stability in the region. At the same time, J. Biden and Y. Suga noted that it is important to have a frank dialogue with Beijing, directly express their concerns and work with it on topics of interest. The United States remains Japan's most important military and political partner, guaranteeing the security of the Japanese state from outside attacks. According to official Japanese government documents, the most serious security threat to Japan is the lack of transparency in the increase in the combat capability of the Chinese military. In addition, China's attempts to change the status quo in the East China and South China Seas pose a threat to Japan. There is particular concern about China's activity around the Senkaku Islands in the East China Sea, which threatens Japan's sovereignty over the islands. In addition, the development of the DPRK's nuclear and missile programs is considered a security threat to Japan. Tokyo is concerned about the significant progress made by Pyongyang in the development of a new type of ballistic missile. On these most sensitive issues, Tokyo is seeking guarantees from Washington to ensure its security. The growing confrontation between the US and China in the international military-political sphere poses new challenges to the alliance between Japan and the US. In the 2010s - early 2020s. with the active assistance of the Japanese government, military cooperation between Tokyo and Washington has expanded markedly. The change in the interpretation of the Constitution by the government of S. Abe in 2013 allowed Japan to apply the right to collective self-defense in limited cases. The Japanese Self-Defense Forces gained the ability to come to the aid of their allies in joint operations outside the Japanese islands. As a result, the scope of the Japanese-American alliance has expanded virtually to the whole world. The creation in 2015 of the Coordinating Mechanism between the armed forces of the two countries is aimed at strengthening cooperation between Tokyo and Washington in the military sphere. It was used to monitor the situation on the Korean Peninsula during the escalation of tensions in 2017. In addition, Japan increased the volume of purchases of American weapons, including F-35 aircraft, SM3 ballistic missile interceptors, RQ-4 Global Hawk long-range unmanned reconnaissance aircraft, Osprey convertiplanes, E-2D Advanced Hawkeye AWACS aircraft, etc. Tokyo's more active involvement in the confrontation between Washington and Beijing is supported by some American political experts. In recent years, there has been an increase in the number of publications substantiating the important role of Japan in the US strategy in the Indo-Pacific region. It is noted that during the years of D. Trump's presidency, the United States refused to participate in a number of global and regional multilateral initiatives, undermining its credibility as the leader of the liberal international order. At the same time, it was Japan that assumed the role of a conductor and defender of liberal values in the IPR. As S. Smith, senior fellow at the American Council on Foreign Affairs, notes, along with maintaining an unshakable commitment to an alliance with the United States, Japan has acquired a more prominent role in international coalitions in the ITR in recent years. This is evidenced by its participation in naval exercises with the United States, Australia, India, and others. Further involvement of Japan in the US-Chinese confrontation on the side of the United States will require Tokyo to build up its military potential and increase its defense budget, strengthen coordination between its three types of armed forces, between the armed forces of the United States and Japan, as well as the unification of their commands. Such changes in Japan's military sphere will require further modifications of its defense legislation, including a revision of the restrictions imposed by the anti-war Article 9 of the Constitution. Although part of the political elite, including members of the ruling Liberal Democratic Party and former Prime Ministers S. Abe and Y. Suga, advocates the need to revise the Constitution and further expand Japan's military capabilities, about half of the public still does not support this course and adheres to pacifist views. In the short term, radical changes in Japan are unlikely, which will impose restrictions on Japanese-American cooperation in the military sphere. As for relations between Japan and China, during the period of D. Trump's administration in the United States, there was limited convergence on economic and political issues between Tokyo and Beijing in 2017-2019. The visit of Prime Minister S. Abe to Beijing in 2018 gave an impetus to the expansion of economic interaction between the two largest Asian economies. China and Japan signed 52 agreements totaling about $18 billion, announced plans to cooperate in third countries in the field of infrastructure construction, agreed to cooperate in the field of innovation development and intellectual property protection, renewed a $30.4 billion currency swap agreement, expressed the need to jointly develop free trade regimes in the region. Tokyo and Beijing have taken steps towards each other in the field of regulating tension in the East China Sea. The parties reaffirmed their long-standing intention to turn the East China Sea into a "sea of peace, cooperation and friendship" and agreed to prevent the emergence of dangerous situations at sea and in the air. On December 28, 2021, Japan and China again announced their intention to open a “hot line” between military departments to monitor the situation in the East China Sea around the Senkaku Islands, the sovereignty over which is disputed by Beijing. In the military-political sphere, serious contradictions remain between Japan and the PRC, including the territorial dispute, the problem of historical memory, as well as competition for influence in the IPR. At the same time, Tokyo maintains channels of communication with Beijing and its own agenda of bilateral relations. According to R. Sahashi, a Tokyo University researcher, Japan's task in its relations with China since establishing diplomatic relations in the 1970s has been to involve China in the international political order through the development of bilateral economic relations while maintaining its alliance with the United States. Japan's response to the current intensification of confrontation between the United States and China has been to increase cooperation with the United States in the military-political sphere and in the field of economic security, as well as the development of interaction with countries that share views with Tokyo on a preferred international order while maintaining diplomatic relations with China. Japan's long-term interest lies in the creation in the IPR of certain institutions in the field of economy, politics and security, which should lead to the formation of an order based on universal values.Trade and economic sphereIn 2021, the policy of the Joe Biden administration in the trade and economic sphere in the Indo-Pacific region was in the process of formation. Many of D. Trump's measures, primarily in relation to China, have retained their effect. A number of new initiatives were proposed to restore the US position in the IPR, lost during the years of the previous administration. With respect to the PRC, Washington upheld the tariffs imposed by Trump on imports of Chinese products worth about $370 billion (on 75% of exports of Chinese manufacturers to the United States). In addition, sanctions remain against high-tech Chinese companies ZTE and Huawei. In response to US restrictive measures, China imposed 25% tariffs on $110 billion of US imports in 2018. The trade dispute between the United States and China, the active phase of which fell on 2018-2019, led to the signing by the parties on January 16, 2020 of the so-called first phase of the trade agreement. It assumed an increase in Beijing's purchases of American products in 2020-2021. by $200 billion compared to 2017. It also committed China to make progress in enforcing intellectual property rights, remove non-tariff barriers to agricultural imports, and liberalize its financial services sector. The Biden administration continued to insist that China fulfill the terms of the first phase of the bilateral agreement. In October 2021, the new US Trade Representative K. Tai announced her intention to continue consultations with the Chinese side on trade and economic issues, as well as to raise issues such as subsidizing by the PRC government of certain sectors of the economy and special measures to support state-owned enterprises, which Washington is considering in as Beijing's "non-market trading practices". The trade dispute between the United States and China has led to a slowdown in the global economy and world trade, a decline in business confidence and increased uncertainty about future developments. Japan's trade volume in 2019 also decreased by 5% compared to 2018. Japanese exports to China fell by 7%, imports decreased by 3%. China remains Japan's largest trading partner: China's share in Japanese trade in 2018-2019 was 22%, and at the end of 2020 it increased to 24%, while the share of the USA was at the level of 15%. The trade dispute between Washington and Beijing had a negative impact on the economic performance of Japanese multinational corporations (TNCs) with Chinese subsidiaries. Since the US imposed tariffs on Chinese products in 2018, there has been a decline in sales from Chinese affiliates of Japanese TNCs trading with North American countries. Declines in the value of shares on the exchange (Nikkei 225 Index) were recorded for Japanese TNCs, whose operations are related to trade between the US and China. The share price of TNCs, whose Chinese subsidiaries had a higher share of imports from Japan, fell most noticeably. This is because, as sales to the US fell, the volume and value of imports from Japan also fell, resulting in a decline in the share price. To avoid an increase in the negative effect of the trade war, some Japanese corporations were forced to transfer production. So, Mitsubishi Electric in 2018-2019 moved part of the production of semiconductors and equipment for customers from the United States to Japan. Other companies have increased the capacity of their plants in North America and Southeast Asia. Electric motor maker Nidec Corporation moved production to Mexico in October 2018, Ricoh moved printer production to Thailand, and Sharp moved some laptop production from China to Vietnam. Washington’s course to confront Beijing in the economic and technological spheres in 2021 was supplemented by an initiative aimed at reducing the dependence of the US economy on high-tech products made in China and reformatting existing supply chains with the possible exclusion of China from them. In February 2021, Washington announced its intention to encourage the transfer of production of critical products from China to the United States and allied countries, including Japan, South Korea, Taiwan, Australia, and India. At the same time, special attention in the United States is paid to the production of semiconductors, an industry that is one of the key drivers of global economic growth. The semiconductor shortage in 2021 exposed the vulnerability of existing supply chains and undermined the global production of cars, computers and electronics. On June 8, 2021, the U.S. Senate passed the Innovation and Competition Act, which provides $250 billion for the development of the semiconductor, quantum computing, and artificial intelligence industries. 52 billion of them is planned to be directed to expanding the production of semiconductors in the United States. The purpose of this bill is to increase the competitiveness of the United States in the technological competition with China, where as part of the "Made in China 2025" strategy, the amount of state support for semiconductor-producing companies is stated to be 1.4 trillion dollars. The Japanese government is also taking steps to reduce dependence on China. According to Japanese expert A. Furuse, Tokyo realized the need to diversify its supply chains as early as 2010 after the escalation of tensions around the Senkaku Islands in the East China Sea caused interruptions in the supply of rare earth metals to Japan from China. Today, when the whole world is facing supply disruptions, the importance of cooperation between allies and partners in high-tech industries is increasing. Partner countries will be able to reduce the risks of dependence on China, share the financial burden on research and development, and take their industrial cooperation to a new level. On June 4, 2021, the Government of Japan released the "Semiconductor and Digital Industries Strategy" covering activities in three sectors: semiconductors, digital infrastructure, and digital industry. It states that ensuring the security of production and supply of semiconductors is an issue directly related to economic security in the face of technological competition between the United States and China. To this end, Japan will promote joint development with advanced foreign manufacturers. Another document released by Japan's Ministry of Economy, Trade and Industry on June 29, 2021 said that with the rivalry between the US and China intensifying, Japan should diversify its suppliers and cooperate with the US and other countries to protect supply chains. It also emphasizes the need to take measures to prevent the leakage of sensitive technologies from Japan. Another important issue is the prospects for the participation of the US and China in multilateral trade formats in the ITR. Now China's share of international trade in the region far exceeds that of the United States. On November 15, 2020, the Regional Comprehensive Economic Partnership (RCEP) was signed and entered into force on January 1, 2022 for ten countries (Australia, Brunei, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand and Vietnam). In the absence of India, which pulled out of negotiations in early 2020, China is taking the lead in this world's largest free trade zone, covering 30% of the world's population. After the United States withdrew from the Trans-Pacific Partnership (TPP) in 2017, the remaining 11 countries participating in the negotiations entered into a new agreement called the Comprehensive and Progressive Agreement on the Trans-Pacific Partnership (CPTPP). Japan, after the withdrawal of the United States, took the place of the leader of the association and thereby guaranteed itself participation in the formation of rules and norms for conducting trade and economic activities in the region. In September 2021, China applied to join the CPTPP. Although many are skeptical about the prospects of China's participation in the CPTPP, China's share in the trade of all its members already exceeds that of the United States. The accession of the United States to the CPTPP in the near future is also unlikely, primarily for domestic political reasons. Nevertheless, in 2021, the Biden administration made an attempt to return to the discussion of trade and economic issues in the IPR on a multilateral basis. Speaking at the East Asia Summit (EAS) on October 27, 2021, which was held online, Biden announced the initiative to create the Indo-Pacific economic framework. According to him, its activities will be aimed at facilitating trade procedures, setting standards for the digital economy and technologies, strengthening the sustainability of supply chains, decarbonization and development of clean energy, infrastructure development, improving labor standards, and so on. But this initiative, unlike multilateral free trade agreements, will not be binding, it does not include trade and investment liberalization goals, and it does not guarantee preferences in the attractive US market. These circumstances will reduce the value of the American proposal for the IPR countries in comparison with the already existing multilateral formats. Washington's unwillingness to participate in free trade agreements in the IPR reduces the involvement and influence of the United States in the rules and norms of trade and economic activity being developed here. In turn, Beijing, the leading trading partner of most regional economies, during the 2010s put in significant efforts in creating its own international institutions designed to strengthen the influence of the PRC on international economic relations and at the same time increase independence from external rules and norms. Under these conditions, Japan sees its task as the formation of a multifaceted trade and economic system with unified rules and norms in the ITR, which will be able to not only balance China's growing influence but also create a liberal economic order that both China and the United States will be forced to reckon with. Thus, Japan hopes that its multilateral trade policy will be able to limit the unilateral actions of Beijing and Washington and reduce the potential negative effects of the trade war between China and the United States on the national and global economy.

Japanese Prime Minister Fumio Kishida and his Liberal Democratic Party (LDP) are facing one of the worst financial scandals in decades, resulting in growing public distrust of the party and threatening the stability of his government. The Kishida government, which took office in October 2021, was already facing headwinds as its cabinet’s popularity declined due to concerns about the economy, social security and the LDP’s links to the Unification Church. The assassination of former prime minister Shinzo Abe in 2022 during an election campaign further complicates matters. The assailant claimed that Abe supported the Unification Church, which he said caused his family’s bankruptcy and forced his mother into making donations. Many other LDP parliamentarians are known supporters of the Church. Kishida and the LDP are yet to be transparent about this issue. Despite falling popularity, the LDP’s approval ratings hovered in the 30s between October and November 2023. Analysts suggested that, despite his low popularity, Kishida would continue and that there were no imminent threats to his prime ministership. That scenario changed dramatically at the close of November 2023. One poll suggests that Kishida’s cabinet approval rate has plummeted to 17 per cent, marking the lowest prime ministerial approval rating since the LDP regained power in 2012. The drop in popularity occurred after it was revealed that LDP factions and the individual parliamentarians associated with them had failed to report all revenues from ticket sales at fundraising events. The slush fund, estimated to be millions of dollars, was used for political purposes, violating the Public Funds Control Law. The Public Prosecutors Office has launched investigations into the LDP’s largest and most influential faction, the Seiwakai, commonly referred to as the Abe faction. Reports suggest that four other major factions, including the one led by Kishida, might also be implicated. Kishida has replaced four key cabinet ministers from the Abe faction. The position of Chief Cabinet Secretary — which serves as the face of the government — has gone to Yoshimasa Hayashi. Kishida had removed Hayashi from his position as foreign minister and, facing difficulty in persuading other colleagues to assume the Chief Cabinet Secretary position, Kishida opted for Hayashi, a member of his own faction. The other three ministerial positions went to factions led by Taro Aso, Toshimitsu Motegi and Hiroshi Moriyama. The cabinet reshuffle does not address the core problem — money politics. Money politics remains endemic in Japan’s political system, despite past reforms. In the 1970s, former prime minister Kakuei Tanaka resigned due to a bribery scandal. Following Tanaka’s resignation, the LDP sought to regain public trust by turning to ‘Mr Clean’, former prime minister Takeo Miki. But it was not long before another large-scale financial scandal — the Recruit Scandal — emerged in the late 1980s. The scandal led to former prime minister Noboru Takeshita’s resignation, his secretary’s suicide and the resignation of many high-profile politicians. Takeshita’s successor, former prime minister Sosuke Uno, resigned within months following revelations of sexual misconduct. Amid the scandals, the LDP called in another Mr Clean, former prime minister Toshiki Kaifu. But the LDP’s troubles persisted. The 1993 Sagawa Kyubin financial scandal resulted in the arrest and subsequent imprisonment of LDP ‘strongman’ Shin Kanemaru on tax evasion charges. These scandals ultimately led to the LDP’s electoral defeat in 1993, marking what was supposed to be a new era in Japanese politics. But opposition parties have struggled to win government and sustain it. The LDP regained power within two years of its 1993 defeat. Similarly, the LDP returned to government within three years by defeating the Democratic Party of Japan in 2012. Even during the Abe administration, reports of financial scandals emerged. But Abe’s strong popularity allowed him to survive. The current fundraising scandal and its scale are still unfolding. More resignations are likely. Many details regarding the unlawful accumulation of political funds remain unknown. The Public Prosecutors Office may shed light on the scandal after its investigation. Regardless of the outcome of the investigation, Kishida’s position appears untenable. Though not directly implicated like Tanaka, Takeshita and Uno in the past, the public expects Kishida, as President of the LDP, to own up to the rot in the party and step down. Despite the reshuffle of his cabinet and his statement committing to spearhead reforms in the LDP, it will be a political miracle if he survives this scandal ahead of the LDP presidential election in September 2024. The LDP and its Prime Minister face a choice. They can follow the same path as their predecessors by temporarily presenting a ‘clean’ face and then reverting back to business as usual. Alternatively, the new generation of LDP politicians can challenge the established path and set a different course for the party, one that is policy-focused, transparent, less factional and not hereditary. But it remains uncertain whether the new generation of LDP politicians is inclined to take on this challenge. The opposition parties remain weak, fragmented and unable to replace the LDP. Yet they play a crucial role in keeping the LDP government accountable. Without the Japanese Communist Party’s scrutiny, the present fundraising scandal might never have come to light.

The dollar’s strength is placing pressure on economies around the world, including in developing Asia. What makes this bout of dollar strength unique is that the stress is not limited to Asia’s developing economies. Asian economies are diverse and the direct financial impact of dollar strength varies. Some regional economies have significant foreign currency debts and limited foreign currency reserves. Unsurprisingly, these economies are in financial trouble. Sri Lanka defaulted on its bonds earlier in the year and is now trying to restructure its external debt. Pakistan has had to seek an emergency financing package from the International Monetary Fund, backstopped with pledges of additional support from both China and the Gulf. Bangladesh has proactively sought out IMF financing in the face of a terms of trade shock. Laos is, in all probability, relying on the continued forbearance of China’s policy banks to manage its unsustainable debt loads. All these countries are struggling to pay for imports of oil and natural gas. A broader set of Asian economies have relatively strong foreign currency balance sheets and are not at risk of immediate financial distress. Many have been able to rely on their local currency bond markets to finance fiscal deficits, limiting their direct financial vulnerability to swings in the dollar. India is in a much stronger position than during the 2013–14 ‘taper’ tantrum. It started 2022 with US$650 billion in foreign reserves, more than double the US$250 billion it held in 2012. The Indian government’s external debt, primarily to the multilateral development banks, only totalled US$125 billion. Thailand’s government started 2022 with over US$250 billion in foreign exchange reserves — or over 50 per cent of its GDP — while owing a bit over US$30 billion to external creditors. Other countries have more subtle strengths. For example, a substantial share of Indonesia’s US$80 billion in international sovereign bonds are denominated in yen. At the same time, balance sheet resilience is not sufficient to insulate a country’s broader economy from the impacts of a strong dollar. Even countries that have little to fear financially worry about the impact of currency weakness on households’ costs of living. There has been little correlation to date between the extent of currency depreciation across the main Asian currencies and the underlying strength of countries’ foreign currency balance sheets. The currencies of advanced Asian economies have actually depreciated more than the currencies of developing Asian economies. Japan — with plenty of reserves, significant foreign assets in its government pension fund and insurance companies that are structurally ‘long’ dollars — has experienced the largest depreciation. Taiwan and South Korea have followed. Meanwhile India, Indonesia, Malaysia and Thailand have experienced smaller depreciations. The reason for this is simple. Up until Japan’s heavy intervention in late September 2022, lower income Asian economies had been more willing to defend their currencies through a combination of rate increases and foreign reserve sales. There are signs that this is changing. Japan intervened heavily in September and October. South Korea is now worried that the won  has become too weak and is seeking to join Japan in obtaining a standing Federal Reserve swap line to meet dollar liquidity needs in its financial sector — potentially freeing up more of its existing reserves for intervention. Even though the dollar is now off its October peak, developing Asian economies continue to face several risks. The first is that certain economies may overestimate their balance sheet strength and sell foreign exchange for longer than is prudent. The basic principle is that temporary shocks can be financed with borrowed or reserve sales while permanent shocks require adjustment. The longer global energy prices remain high and the dollar remains strong, the more difficult it will be for countries to avoid adjustment. The second risk is the possibility of an additional shock from Japan. Japan’s efforts to limit the yen’s depreciation through intervention may fail, as it is harder for Japan to defend its currency through intervention than it is for smaller economies, whose financial markets remain less integrated into global markets. There is the additional risk that yen weakness and imported inflation could lead the Bank of Japan to abandon its policy of ‘yield curve control’ and that the associated rise in long-term Japanese government bond rates could push up interest rates globally. Many emerging economies would likely need to raise their domestic interest rates to avoid importing additional inflation, and to limit popular pressure for fiscal subsidies to offset higher fuel prices. This would be the Asian version of what is now called a reverse currency war. The third risk is a currency shock from China. China has long relied primarily on the signal sent by the People’s Bank of China’s daily fix — the central reference point for daily trading — to manage the yuan with only limited direct intervention by its central bank. To date, the pressure on China appears manageable. News reports suggest that the PBoC has leaned on China’s large state banks to use their balance sheets to help maintain the trading band around the yuan, but there is little evidence of pressure on the central bank’s reserves. However, if its economy remains weak, China may choose to allow more depreciation — both against the dollar and against the currencies of its trading partners to restart its economy. This would be an admission that China’s ability to avoid a prolonged stall through internal demand is limited and that exports are again required for growth. A yuan that is as weak as the yen could easily trigger a race down across the currencies of developing Asia. Many, though not all, developing Asian economies are less vulnerable to a repeat of the 1997 crisis. But few countries will be able to escape the fallout from the dollar’s current strength. A broader overshoot of many currencies that amplifies concentrated pockets of debt difficulties and complicates the fight against inflation globally remains a real risk.

The meeting of Russian President Vladimir Putin and Chinese leader Xi Jinping in Moscow helped both give the impression of a united front, but underlying tensions were also discernible. What did the summit achieve for each side?With the pomp of a state visit, Russian President Vladimir Putin and Chinese leader Xi Jinping shined a spotlight on their ­growing strategic alignment, which is aimed at upending the U.S.-led, rules-based international order in favor of a multipolar world. Long on symbolism, short on concrete substance, the summit nevertheless served both leaders’ purposes. Putin welcomed the demonstration that Russia was not, and could not be, isolated on the world stage, as it deepened relations with one of the world’s two superpowers. By showcasing burgeoning commercial ties and unveiling plans to expand them, Putin conveyed confidence that Russia can remain resilient in the face of harsh Western sanctions.      Meanwhile, Xi’s decision to make Moscow his first foreign visit of his third term as president underscored his strong commitment to Russia and to Putin personally. He used the summit to underscore China’s determination to pursue its national interests in defiance of mounting U.S. economic and diplomatic pressure—making the point that China will not abandon its strategic partner in pushing back against U.S. pretensions to global leadership. That was a crucial message for his increasingly nationalistic domestic audience, as well as for the Global South, where the U.S.-led liberal order is under stress. At the same time, Xi subtly let it be known that China is the dominant partner. Putin had little choice but to accept Xi’s proposal that Russia use the yuan, not the ruble, in trade with the Global South to diminish the role of the U.S. dollar in world trade. Xi also gratuitously endorsed Putin for reelection in 2024, even though the Russian president has not declared his intention to run. And at the joint press availability at the end of the summit, Xi was much more restrained in his description of bilateral relations than was Putin, who was eager to lay out all the areas in which the two countries would enhance cooperation in the years ahead. That left the clear impression that Russia needed China much more than China needed Russia.What does the summit mean for the war in Ukraine?Nothing at the summit suggested that the underlying dynamic in the war was about to change. As expected, Beijing continued to provide Moscow with strong diplomatic support, echoing the latter’s narrative blaming the North Atlantic Treaty Organization (NATO) for the conflict. Despite Washington’s fears, however, Xi gave no indication that China was ready to provide lethal military aid that might radically improve Russia’s chances on the battlefield. Putin noted that China’s recently released 12-point peace plan could serve as a basis for negotiations, but neither he nor Xi suggested any practical steps that might give substance to what is largely a list of bromides about respecting sovereignty, avoiding escalation, and seeking a diplomatic solution. The reality is that China benefits from the military stalemate. Russia’s aggression distracts U.S. attention and resources from the Indo-Pacific region, while Western sanctions compel Russia to turn to China as an economic lifeline. China exploits Russia’s predicament to gain access to critical natural resources, especially oil and gas, at discounted prices.  In line with this calculus, Xi provided Putin with sufficient moral and material support so that he could continue the fight, but much less than needed to give Russia the advantage. At the same time, the Chinese continued to drive hard commercial bargains. Notably, no deal was announced to build a second Power of Siberia gas pipeline, which Putin has described as “the deal of the century.” Rather, it was simply noted that further details needed to be negotiated, as China explores alternatives.What does it reveal about the underlying tensions between China and Russia?Except for a brief period after the Communist takeover of China in 1949, China and Russia have been rivals, not partners. Until the end of the Cold War, Russia was by far the superior power.   The dynamic changed dramatically after 1991. Then, the two countries’ economies were roughly the same size. Now, China’s economy is ten times larger, and the gap continues to widen.  Moreover, China now casts a much larger shadow on the global stage: it has overtaken Russia in the development of advanced technology and its conventional military is comparable to Russia’s, even as it is moving toward nuclear parity with both Russia and the United States. What once could have been seen as a roughly equal partnership has evolved to the point where Russia is decidedly the junior partner. Despite the rhetoric of comprehensive partnership and avowals from Putin and Xi that relations have never been better, this asymmetry in power and ambition is in itself a source of friction, in addition to the civilizational clashes, racial prejudices, territorial grievances, and geopolitical competition that have strained relations in the past. But these sources of tension are currently far outweighed by the shared challenge from the United States. Washington’s current policy of dual containment only reinforces their strategic alignment and pushes the tensions further into the background.