stratfor global vantage eastasia 11 05--rev 3 · 2014. 1. 13. · stratfor is the world’s leading...

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S t r at e g i c F o r e c a s t i n g , I n c .Stratfor is the world’s leading private intelligence firm providing corporations, governments and individuals with intelligence and analysis to anticipate the political, economic, and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and working in close collaboration with Stratfor’s experienced team of professionals, our clients are better able to protect their assets, diminish risk, and increase opportunities to compete in the global market.

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A b o u t S t r at f or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i i i

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E x e c u t i v e S u m m a r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 T h e M o n t h i n R e v i e w . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 K e y I s s u e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 F o r e c a s t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 E c o n o m i c F o c u s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 S e c u r i t y F o c u s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 N o t e w o r t h y E v e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 7

S t r at f o r S e r v i c e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4

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iii© 2005 Strategic Forecasting, Inc.

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n contrast to a busy September, East Asia largely marked time during October. The month’s relative tranquility represented a lull before a November and December brimming with scheduled bilateral and international meetings. A bombing in Bali on Oct. 1 and the Oct. 13 Chinese space launch of the Shenzhou VI, however, constituted

explosive exceptions to this quiescent period. Meanwhile, Japanese Prime Minister Junichiro Koizumi flexed his newly bulked up political muscles, making Japan’s neighbors nervous. By month’s end, regional diplomatic activity picked up in anticipation of a variety of upcoming meetings.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • Jemaah Islamiyah Strikes Bali Again • Economic Focus • Acknowledging China’s Gaps • Security Focus • North Korea Keeps Talking • Noteworthy Events • Japan’s Nervous Neighbors • November Forecast

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ast Asia dealt with internal issues in October as the stage was set for the numerous diplomatic exchanges set to occur in November. Japanese Prime Minister Junichiro Koizumi set the tone for the upcoming Asia-Pacific Economic Cooperation (APEC) meeting by paying another controversial visit to the Yasukuni Shrine that honors

Japanese fighters from World War II, including convicted war criminals. Later, Koizumi shuffled his Cabinet, changing the top positions to ensure that his key reform policies survive beyond the end of his term in office in September 2006.

Japan’s Asian neighbors welcomed neither move. Such nations view Koizumi’s actions as a trou-bling reminder of Japan’s militarist past, especially given Koizumi’s acknowledged preparation to take steps away from the pacifist policies imposed on Japan following World War II. Intra-Asian ties became further strained as China halted plans for bilateral summits and planned meetings on the sidelines of the APEC forum with Japanese officials.

Chinese nationalism received a boost during October with the National Day and Golden Week activities kicking off the month, followed by the successful launch of the second manned space mission in Chinese history. Though such an accomplishment serves as a reminder of the China’s storied history, so evoking sentiments of national pride, such sentiments were tempered by the government’s admission of the existence of several social and cultural problems emerging from decades of unrestricted and unrestrained growth. The government announced several initiatives meant to bridge the gap between the wealth of China’s coastal provinces and the abject poverty of the interior, introducing Robin Hood policies aimed at taking from the rich provinces to give to the poor provinces. Old habits die hard, however, and it is doubtful that a strong sense of national pride will trump the almighty yuan.

October also saw new installments in several continuing stories unfold in Southeast Asia, such as the fourth attack in as many years perpetrated by militants of the al Qaeda-affiliated Jemaah Islamiyah (JI) Islamist group. Several other militant incidents plagued the region in October, as security forces hunted JI militants suspected of hiding in the Philippines. Similarly, Indonesia witnessed the beheadings of three teenage Christian girls in yet another outbreak of violence in the province of Sulawesi.

Preparations were made for diplomatic meetings in November, including the next round of six-party talks regarding the North Korean nuclear program. At the end of October, Chinese President Hu Jintao paid what represented both his first visit to Pyongyang and the first visit of a sitting Chinese president to North Korea since 2001. At the same time, U.S. Secretary of Defense Donald Rumsfeld visited both Beijing and Seoul to lay the groundwork for the visit of U.S. President George W. Bush, who will attend the APEC summit in November; Bush’s November Asia trip will also include stops in Beijing; Seoul, South Korea; and Ulaanbaatar, Mongolia.

EE x e c u t i v e S u m m a r y


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T h e M o n t h i n R e v i e w

October was largely a month of waiting. Though it opened with both the Bali bombing and China’s National Day celebrations, the month primarily represented a bridge between an active September and the bilateral and international meetings of November and December. In addition to the Oct. 1 incidents, China launched its second manned space flight and issued its latest five-year economic plan, while Japanese Prime Minister Junichiro Koizumi, newly invigorated from a major election victory for his Liberal Democratic Party (LDP), paid another controversial visit to the Yasukuni Shrine, which honors Japan’s World War II dead, including convicted war criminals. Koizumi also began to show some of his more conservative colors through his Cabinet reshuffle and the LDP’s approval of a draft for constitutional reform. As the month neared an end, diplomatic contact began to pick up again in anticipation of November meetings, with military discussions between Washington and its key Northeast Asian allies and with Chinese President Hu Jintao’s long-delayed visit to North Korea.

J I S t r i k e s B a l i A g a i nThe Oct. 1 coordinated bombing in Bali, Indonesia, left at least 20 dead and another 100 injured. The bombing, carried out by the Hambali faction of Jemaah Islamiyah (JI), fit the faction’s annual pattern: a moderate-scale bombing around October, in Indonesia, aimed at soft targets. The return to Bali was notable. After the 2002 October Bali bombing, JI switched its targets to Jakarta, on the island of Java, where the group struck the JW Marriott Hotel Jakarta and the Australian Embassy.

British Prime Minister Tony Blair, representing the European Union, traveled to China for talks with Chinese leaders. A large entourage of British businessmen seeking deals with Beijing accompanied Blair. During the talks, the European Union reiterated its intent to address the European arms embargo against China, but set no specific deadline for any resolution. In response, Beijing launched a public relations offensive to show it was addressing EU concerns, arresting health care workers for forced abortions and sterilizations, launching a review of capital punishment policies, and leaking reports that the government will soon rehabilitate former Chinese Communist Party General Secretary Hu Yaobang — the man whose

The new Bali bombing marks an a�empt by JI to force Indonesia to choose between domestic Islamist forces and foreign powers.


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death in part triggered the 1989 Tiananmen Square incident. Beijing also hosted the second part of the fourth round of the six-party talks on North Korea’s nuclear program, shepherding through a joint declaration in which Pyongyang agreed to abandon its nuclear program while having all parties agree to recognize its right to a civilian nuclear power program. Though the joint statement is far from the end of the story, it marked a small victory for Beijing, which had been using the North Korean issue as leverage in dealing with Washington.

A c k n o w l e d g i n g C h i n a ’ s G a p sBeijing has fully recognized and enumerated the potential problems with the increasing wealth and development gap between China’s southeast coastal cities and the rest of the nation, between urban and rural, and between rich and poor. Under Hu, Beijing is pursuing a “harmonious society,” one in which these gaps are reduced as wealth is redistributed more evenly across society. This does not represent a simple proposition, as Beijing has encountered increasing difficulties getting local and regional government and party officials to accede to central government decrees, not to mention to break nearly 30 years of habit.


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The vested interests these local officials constitute are located far away from the problems the central government must cope with, and the idea of shutting down their own steel factories, accepting and supporting more migrant labor or transferring their wealth and opportunities inland is anything but embraced by local officialdom.

China’s response is to try to instill a sense of Chinese patriotism, backed by the Middle Kingdom’s 5,000 years of history and highlighted by things such as the Shenzhou VI launch and periodic diatribes against Japan. This patriotism is supposed to embrace all Chinese, be they in Singapore, Canada or Taiwan. Beijing’s more subtle Taiwan policies -- which have involved frequent contacts with the opposition Nationalist Kuomintang -- underscore this, as does Beijing’s overall “peaceful rise” concept, which in itself has been toned down to avoid using the word “rise.”

Hu traveled to North Korea to meet with Kim Jong Il at the end of October in a meeting that, though long delayed, turned out relatively cheerful and productive. The two sides discussed additional economic cooperation, emphasizing energy and transportation as the key areas North Korea needs to better develop. Hu also traveled to Vietnam for talks on economic issues. The visits are designed to re-establish China’s influence -- or at least good relations -- with its neighboring states. N o r t h K o r e a K e e p s Ta l k i n gNorth Korea, meanwhile, continued economic talks with South Korea and opened its borders to South Korean and American tourists, carefully modifying its mass games to reduce images of anti-Americanism and instead embracing the ideal of Korean unification. Pyongyang also continued negotiations with the World Food Program, calling for an end to aid donations and instead asking for development assistance. For the juche (self-reliance) society, aid is simply a crutch that makes North Korea dependent on the goodwill of the outside world -- and at the mercy of U.S. political whims.

Koizumi’s visit to the Yasukuni Shrine signaled his intention to lead Japan on a path of national self-interest free from historical apologies.

Beĳing is pursuing a ‘harmonious society,’ one in which economic gaps are reduced as wealth is redistributed more evenly.


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In Japan, Koizumi saw his postal reforms passed, and with a renewed national mandate, made another trek to the Yasukuni Shrine, attracting the criticism of China and both Koreas. Koizumi’s visit preceded several planned diplomatic meets, and sent a clear signal that he intends to lead Japan on a path of national self-interest, no longer to be bound by historical apologies or shackled to its past by its neighbors. The LDP’s draft constitution further enforces this, with the removal of the pacifist Article 9 and the establishment of a truly functional role for the Self-Defense Forces. It also enshrines the visits to Yasukuni as fitting within social norms, despite their religious connotations.

Overall, October was less a month of major shifts and instead a month of slow, mostly predictable, steps by major players. The meetings and visits of November are the meat, and with the United States embroiled in domestic political crises, East Asia was glad to take a rest and focus on internal political and social issues. The post summer lull, however, is about to end.

K e y I s s u e s

Japanese Prime Minister Junichiro Koizumi, fresh from a renewed national mandate in the form of a landslide victory for his ruling Liberal Democratic Party (LDP) in Sept. 11 parliamentary elections, has pushed through his postal-privatization plan, is pursuing reducing the size of Japan’s bureaucracy and has faced challengers from within the LDP head-on. Koizumi has gained strength and solidified his position not only within the LDP, but in Japanese politics as a whole.

K o i z u m i : A p p e a r a n c e v s . R e a l i t ySince before he became prime minister, Koizumi has portrayed himself as a radical reformer, an unconventional Japanese politician with a lion’s mane of hair and free-thinking ideas for changing Japan’s stagnant economic and bureaucratic political system. Koizumi has appeared to buck convention, and his postal-reform plan has both raised hackles at home and given him the image of a man on a mission, pursuing reform even to the point of putting his job and party at risk.

This has constituted a carefully stage-managed image, however, and does not reflect the full Koizumi. At his core, Koizumi is a very conventional Japanese politician, a staunch nationalist conservative whose underlying

At the Cold War’s end, Tokyo realized Washington would no longer guarantee Japan’s interests in all cases.


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plans are not for liberalizing reforms but for restoring Japanese power on a global scale -- not only by virtue of its economic heft, but also through strong political and military influence.

Koizumi, who campaigned under the slogan “Change the LDP, Change Japan,” has done nearly everything he said he would. He has passed the postal-privatization bill (even if it does not take effect for years) and he has taken on the power factions within the LDP (consolidating power under himself). But as Stratfor noted in April 2001, when Koizumi was chosen over Ryutaro Hashimoto as president of a weakened and vulnerable LDP, it will be Koizumi’s “musings on Japanese foreign policy and the military’s future role (that) are more likely to emerge as the key hallmarks of Koizumi’s stint as prime minister.”

F r o m P a c i f i s m t o a ‘ R e a l ’ M i l i t a r yJapan was already well on the way to reassessing its pacifist constitution when Koizumi came to power. With the end of the Cold War, Tokyo realized with a start that Washington was no longer going to guarantee the interests of Japan in all cases. Whereas the United States needed Japan as a bastion against the possible movement of the Soviet Pacific Fleet, with no more Soviet Union, Japan’s strategic importance waned. Washington ended the economic support for the world’s second-largest economy, thus ending an unnatural situation in which the two largest economies cooperated rather than competed.

Japan, its economic system based on growth and flow-through rather than sustainability and profitability, went into a systemic malaise from which it is only now showing signs of emerging, and Japan’s strategic interests at times started clashing with those of the United States -- particularly when it came to energy resources. Japan began considering ways to protect its own strategic interests, particularly on the sea-lanes from the Middle East through the Strait of Malacca and the South China Sea.

But it was the 1996 Japanese Embassy in Peru incident that really kick-started Japan’s review of its military capabilities and restrictions. The North Korean satellite launch attempt in 1998 reinforced in Tokyo’s

The LDP’s suggested reforms included the establishment of a ‘real’ military and permission for officials to participate in religion within social norms.


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mind the need to reassess its military constraints, and Tokyo began making moves to build interoperability between the Self-Defense Forces and domestic security forces such as the coast guard and police. By Sept. 11, 2001, Japan had already begun liberally interpreting its constitution in regard to defense issues, and Tokyo agreed to send support vessels to back up U.S. operations in South and West Asia, and then to send forces to Iraq.

Koizumi leapt on this shift in international security issues, and Japan began a serious review of its constitution, with the LDP finally coming out with a list of suggested reforms, including the establishment of a “real” military and the constitutional permission for government officials to participate in religion as long as it fit within social norms -- thereby enshrining the prime minister’s right to visit the Yasukuni Shrine.

J a p a n ’ s N e r v o u s N e i g h b o r sWhile there is little denying that Japan needs to evolve its defensive doctrine into a post-Cold War system, that does little to reassure Japan’s neighbors. China and North and South Korea share a traditional distrust of Japan after centuries of wars, invasions and occupations, and with both Koreas seeking a unifying cause, and China seeking to unify its citizens’ vision, Japan represents a ready target for nationalist rhetoric and actions from the Koreas and China.

Such targeting only enflames Tokyo’s sense of purpose and its desire to evolve beyond Japan’s post-World War II constraints. And this embodies the contradiction of the times in East Asia. As the various Asian nations are seeking some sort of regional unifying voice -- be it an expansion of the six-party talks, the new East Asia Summit or an Asian economic bloc -- there is a simultaneous rise in nationalism for political purposes. The two opposing forces, and a very real competition for economic and political space, are sure to shape a tense and seemingly contradictory Asian environment for some time.


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F o r e c a s t

H i g h l i g h t s • A Month of Diplomacy • Hu Visits Europe, Asia • Hu Visits Bush

A M o n t h o f D i p l o m a c yNovember is set to be a busy month in East Asia, with South Korea hosting the Asia-Pacific Economic Cooperation (APEC) summit, and the related bilateral meetings and visits associated with such broad-based summits. Although economics is the core of APEC, and much attention will be placed on China and its growing trade surplus, political and security issues are on everyone’s mind -- from the competition over resources in the South China Sea to the militants in Southeast Asia, from U.S. basing realignments in Japan and South Korea to Chinese military modernization and advancement.

In addition to APEC, the six-party Korean nuclear talks resume in November, with a break scheduled for APEC. This round of talks is expected to be more difficult, as it is all about nailing down the details for moving forward from the previous joint statement of common principles. Increased tensions between Japan and China could emerge in the context of the multilateral talks, which already will be affected by Pyongyang’s reading that the United States is in a weak position given its internal scandals and the war in Iraq. As such, there will unlikely be any major breakthrough.

Thus, the diplomatic calendar for November is fairly full. The six-party talks resume around Nov. 8 in Beijing, while the APEC summit will be held Nov. 17-19 in Pusan, South Korea. In addition, Chinese President Hu Jintao will conclude a visit to Vietnam in early November before traveling to Europe from Nov. 8 to 15, where he will visit the United Kingdom, Germany and Spain. Later, Hu will meet with South Korean President Roh Moo Hyun on Nov. 16, and U.S. President George W. Bush will visit Beijing to meet with Hu on Nov. 19. Bush’s visit to Asia for APEC will also allow him to meet with Roh, as well as visit Japan, China and Mongolia.

In addition to APEC, the six-party Korean nuclear talks resume in November.


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H u V i s i t s E u r o p e , A s i aHu’s European tour is intended to enhance economic cooperation and to demonstrate China’s peaceful and important role in global affairs. Although China has come to an agreement of sorts with the European Union regarding textiles (much to the chagrin of France, which Hu is noticeably not visiting), in essence, the agreements reached this year only postpone a painful readjustment of trade. European importers and resellers have played an important role in altering quotas opening Europe to more Chinese goods, but that might not last if economic troubles hit European nations.

Hu’s Asian visits will have a very different flavor. Having visited North Korea at the end of October, Hu will pay a visit to Roh in South Korea before the APEC summit. Hu is seeking to strengthen China’s role as the facilitator of all things North Korean -- from the six-party nuclear talks to energy and infrastructure development to playing the role of middleman in inter-Korean relations. While both South and North Korea work with China on an economic level, neither currently wants to give Beijing the leverage to squeeze between them, preferring instead to keep Korean issues Korean issues -- something snuck into the joint statement of agreed principles at the last session of the six-party talks.

H u V i s i t s B u s hPerhaps the most significant meeting of the month, though, will be that between Hu and Bush. Hu’s planned summit meeting to Washington was delayed because of Hurricane Katrina, and though the two met briefly during Hu’s U.S. visit, little in the way of in-depth discussion transpired. China is launching a new social revolution at home, one intended to narrow the income and development gap across the country, and Hu needs Bush’s assurance that Washington will give China the space it needs to carry out this difficult and potentially destabilizing task.

But China is worried the U.S. president will not be able to control his own Congress soon, and it is in Congress and some parts of the Pentagon that the strongest anti-China U.S. voices are heard. Earlier in the year, the Bush administration managed to delay a congressional bill that would have tagged a tariff of some 27 percent on all Chinese imports to the United States, and in return Beijing began the revaluation of the yuan, allowing it to float -- within a very narrow trading band. The small moves on both sides, taken despite the ongoing textile dispute and the rising trade imbalance, were viewed as a very good sign in Beijing.

China is launching a new social revolution at home intended to narrow the income and development gap across the country.


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But Beijing does not feel its luck will last, and is trying to convince the Bush administration that it must retain influence over Congress to give China breathing room. Hu already has suggested that if pressure rises too high, “hard-line” forces in China will gain the upper hand in economic and security policies. Rumors of Hu’s own proposals being shot down -- or at least watered down -- in recent Party and government meetings play into this. And Beijing itself has been the biggest source of information pointing to the potentially negative aspects of the Chinese economy, despite the continued bullish view of foreign observers and investors. For Hu, the meeting with Bush will provide a gauge of the U.S. president’s strength and commitment to maintaining peaceful relations with China. Hu will offer to cultivate even greater influence over North Korea, and will play down China’s military modernization while reassuring Bush that the Shanghai Cooperation Organization is not -- as suggested by Russia -- going to become a security organization designed to counter NATO, but will instead simply focus on counterterrorism and economic cooperation, in particular on the development of Central Asian energy markets.

B u s h V i s i t s T h r e e O t h e r A s i a n L e a d e r sBush will not only visit with Hu, however. He also is slated for meetings with South Korea’s Roh, Japan’s Koizumi and Mongolian President Nambaryn Enkhbayar. The visit with Roh will be tense, as every meeting between the U.S. and South Korean presidents has been so far. Roh continues to push for a more independent foreign and security policy, and wants a stronger role in setting U.S. policy on North Korea.

Bush’s visit with Koizumi will focus on strengthening defense ties between the two states and on Japan’s broader role in regional and global politics and security. While Koizumi will press Bush for support for a permanent seat for Japan on the U.N. Security Council, Bush is unlikely to offer much aside from agreeing to consider Koizumi’s request.

In Mongolia, Bush will be attempting to win the hearts and minds of Mongolia’s leadership. Mongolia is becoming a potential prize for Washington, Russia and China given its strategic location. This will increase Ulaanbaatar’s leverage with all three countries.

Hu will offer to cultivate greater influence over North Korea, and play down China’s military modernization to Bush.


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Elsewhere in East Asia, November may see a shift in Myanmar’s military government, as the junta reshapes itself ahead of the upcoming East Asia Summit. The shift will be mostly cosmetic, however, as the generals simply play musical chairs. Next door, Thailand and Malaysia will increase security cooperation to keep the violence in southern Thailand bottled up. There is currently a surge in attacks, but this likely will fade in the near term. In the Philippines, peace talks with the Moro Islamic Liberation Front are shaping up, and Manila is offering a new autonomy deal for the militants.

E c o n o m i c F o c u s

The Communist Party of China Central Committee approved a draft of an 11th five-year plan (2006-2010) in mid-October. The plan will be sent for approval to the National People’s Congress in March 2006. This was the first draft economic program overseen by President Hu Jintao, and while he faced some stiff opposition, the draft still reflects his “harmonious society” policy. The core of the five-year plan is a shift from China’s emphasis on growth for growth’s sake (the so-called “Asian” business model) to a model geared toward more focused investment, strategic and sustainable development, and -- perhaps most significant -- greater equality in wealth distribution. China’s economic model since Deng Xiaoping launched economic opening and reform in the late 1970s has been one based on growth. China saw itself far behind other global powers -- particularly the United States and the Soviet Union, but also neighboring Japan. Opening various coastal provinces to foreign investment and encouraging rapid economic growth represented a calculated risk to bring China’s economy up to global standards and draw in new technologies, but that would lead to a reversal of earlier principles of common prosperity and development. In recent years, the positive and negative effects of this model have started to become more obvious. While China’s rate of economic growth maintains a consistent place as one of the highest in the world, the gaps between rich and poor, between southeastern coastal provinces and cities and the rest of China, and between rural and urban Chinese are all widening. And social unrest is growing -- even as measured by official Chinese statistics. The new growth patterns also led to rampant corruption and nepotism -- which has led to false statistics, poorly conceived economic projects and a distrust of


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the Party and government by the people. It also has contributed to the rejection of central authority by regional and local officials, whose interests are bound more closely to export markets and foreign investment sources than to the central government’s calls for moving investments to China’s west. The new five-year plan is intended to address these and other growing problems. In essence, the new five-year plan represents an attempt to codify a sort of Robin Hood economic policy -- taking money from the rich provinces, cities and people and giving to the poor provinces, cities and people. As laid out in an Oct. 27 People’s Daily front page commentary, “The ‘stratum, which got rich first’ and once served as the engine of reform, have tasted the fruit of reform and openness earlier than others. Now it is time to establish a system requiring this portion of people and regions to feed the ‘late wealth-winning’ strata and regions.” More bluntly, the commentary says, “New reforms will affect the vested interests of certain social strata and certain regions, which means the redistribution of social wealth. Some prices must be paid for lasting peace and stability and for real harmony of society.” This “price,” of course, is not likely to be paid willingly. According to Chinese officials, when the central government requests monies from coastal provinces and cities to transfer to the interior, or asks for greater access and services for migrant rural labor, its requests are often ignored or rejected. The coastal provinces’ interests are not necessarily the same as greater China’s interests. A local official is concerned with wealth generation and jobs in his own area, with his ties with foreign investors and buyers, and with ensuring there are no major social disturbances in his own area of responsibility. Troubles three provinces over are of no concern. This reality is creating a serious problem for Beijing. The coastal provinces constitute the engine of China’s economy, with foreign trade still making up some 70 percent of the Chinese economy, according to government statistics. This gives the coastal provinces -- aka, the “stratum which got rich first” -- a disproportionate role in the Chinese economy, in turn giving them more sway, or at least creating the impression that they are the real centers of power in China. This situation represents a repetition of problems that have plagued China’s development for centuries. The coastal provinces, with their focus on foreign trade, become more closely linked in interests to outside


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powers, not to their own nation -- which in the past has led to China’s fragmentation and to the establishment of warlord states. But Beijing has something else to worry about: the nearly 800 million rural Chinese. Revolution comes from the masses, and the income gap between the urban and rural Chinese has only grown since the 1979 economic reform and opening. Costs in rural areas are rising, and Chinese officials fear such rising costs have absorbed all of the subsidies and reduced taxation of rural areas, leaving the farmers no better off than they were in 1979. Further, as China industrializes, farms are starting to modernize, and while the introduction of modern machinery and techniques produces bigger harvests, it also reduces the need for labor -- only adding to an already large surplus of labor. And ironically, as crop yields increases, the amount of money coming back to farmers shrinks, furthering the economic divide and increasing the farmers’ frustration. China’s leaders have identified the dangers of the economic splits in China’s society, but have yet to formulate clear plans for narrowing the gap. The People’s Daily commentary hints that the rich will be asked to sacrifice -- and Beijing is trying to spur heightened Chinese patriotism via achievements such as the Shenzhou VI space launch and the 2008 Summer Olympics -- but this patriotism is not likely to outweigh the vested economic and social interests of the haves. The have-nots, meanwhile, are growing restless. And while Beijing has suggested massive infrastructure development -- including new transportation corridors -- to open the interior, reduce the transportation costs of goods and make the interior slightly more competitive, the sheer size of the rural population and the rising sense of frustration with the system does not afford Beijing much time. In sum, Beijing faces an arduous road ahead, and China’s future hangs in the balance.

S e c u r i t y F o c u s

E a s t A s i aFears of a worldwide avian influenza pandemic increased during October after a number of new cases of human infection were reported in Vietnam and Indonesia and when the H5N1 strain of the disease was found in both Europe and South America. Rumors surfaced in late October that China would close its borders if a human-to-human transmission case was confirmed,


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bringing widespread anxiety that such an outbreak would severely disrupt international trade and travel. Also in October, the World Health Organization warned many Asian nations -- including China, which attempted to cover up its 2003 SARS outbreak -- not to try to hide any incidences of bird flu. To date, no instance of a human-to-human spread of the virus has been identified, something which indicates a pandemic is no more likely in 2005 than in any previous year.

I n d o n e s i a Three suicide bombers detonated their explosives on the island of Bali inside restaurants frequented by tourists at the peak of evening dining hours Oct. 1, 2005, leaving more than 20 people dead and nearly 100 others injured. The nearly simultaneous nature of the three attacks, combined with the target selection of tourists in the resort areas of Bali, indicate that the Hambali faction of Jemaah Islamiyah (JI) carried out the attacks. After the October 2002 Bali attacks, the August 2003 attack against the JW Marriott Hotel Jakarta and the September 2004 attack targeting the Australian Embassy


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in Jakarta, an attack was anticipated during the same period in 2005. The 2005 Bali blasts indicate that the international faction of JI maintains the capability to strike successfully against foreign interests inside the country, despite crackdowns against the militant group over the past several years. While JI maintains this capability, it appears that limitations on the group’s ability to act -- one attack per year against soft targets -- remain. The attack also proves the group has the ability to learn from previous experience, since JI shifted its target back to Bali, given that the death of foreign tourists garners a larger international audience and impact than strikes against targets in Jakarta. Though law enforcement authorities are attempting to locate and neutralize the operational planners in the group, they so far have been unsuccessful, leaving the operational cycle of JI intact.

Toward the end of the month, Raffaella Becagli, the daughter of a wealthy Italian businessman, was found dead Oct. 27 in a deserted area on the island of Bali, Indonesia. How long she had been dead and the exact circumstances surrounding her death remain unclear, though her body showed signs of physical violence. Foreigners killed during the commission of crimes in Bali -- especially those traveling alone -- may in fact go unnoticed for several days since they do not have family or acquaintances in the area able to report them missing. Police, who said crime in Bali is rare, indicated that Becagli’s death was likely part of the commission of a crime gone awry. The incident, still under investigation, represents the latest in at least four deaths of foreigners in the Bali area in 2005. It is unclear, however, if the recent series of murders of foreigners represents opportunistic violence carried out against foreigners because of the perception they are wealthy, or attempts to target wealthy individuals in general for extortion purposes, or flows from a general dislike of foreigners. In any case, business and leisure travelers in Bali should be aware of the potential for terrorist activity, criminal activity and violence while traveling in Bali.

Later in October, three Christian teenage girls were captured and beheaded Oct. 30 while walking to school in the central Indonesian province of Sulawesi. Though police have not confirmed the attackers’ identity, many have speculated that the masked militants were Muslim, and that the attack was meant to coincide with the Muslim holy month of Ramadan and ahead of the Nov. 3-4 Eid al-Fitr holiday at Ramadan’s end. The Sulawesi region historically has experienced problems between the Muslim and Christian populations, with violence breaking out sporadically. As a result, nearly all Western governments have issued warnings against any travel to the


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region. Though the attacks likely resulted from anti-Christian sentiment, the incident probably represents nothing more than the latest peak in the cycle of tensions in the region. Although the killings will probably not provoke a widespread outbreak of violence, some revenge attacks likely will occur; something that might prolong the current peak in violence. In any event, the long-term threat for all travelers to the region remains high, both for Christians and Muslims, and it is advisable to avoid the region all together.

P h i l i p p i n e s In mid-October, details regarding September peace talks in Kuala Lumpur between the Philippine government and the Moro Islamic Liberation Front (MILF) were leaked to media outlets in Southeast Asia. The in-principle agreements included provisions allowing the Moros to establish their own government and draft a constitution, to impose their own system of taxation, and form legal and financial systems that would advance the primarily Muslim Mindanao region. The details of the negotiations sparked numerous expressions of both optimism and pessimism. At this point, the process has advanced far enough that it would no longer be advantageous for MILF militants to stage major attacks, given that Manila is addressing MILF demands.

That said, the Philippines still is struggling to contain other militant groups likely hiding in the island nation’s territory. Numerous reports indicate that the Philippine military has information regarding -- and is seeking the operational planners of -- the international faction of Jemaah Islamiyah, including bombmakers Dulmatin and Umar Patek, who are thought to be hiding in the southern Philippines. Reports also suggest the pair is receiving aid from another, more traditional, militant threat to Manila: Abu Sayyaf.

N o t e w o r t h y E v e n t s

Oct. 2, INDONESIA: Suicide bombers are responsible for all three Oct. 1 attacks against tourist resorts on the Indonesian island of Bali, says anti-terrorism official Maj. Gen. Ansyaad Mbai. He says the two suspected organizers of the attack, Azahari bin Husin and Noordin Mohamed Top, are Malaysians believed to be key members of the Jemaah Islamiyah Islamist militant group. The two also are accused of masterminding the 2002 Bali nightclub bombings, as well as two other attacks in the


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Indonesian capital of Jakarta. At least 26 people died, including two U.S. citizens, and more than 100 were injured in the Oct. 1 bombings. The nearly simultaneous bombings struck the Jimbaran beach and an outdoor shopping center in Kuta.

Oct. 4, JAPAN: Japan’s Cabinet approves a bill authorizing the government to extend the Japanese military’s logistical operations mission in support of U.S. forces in the Indian Ocean until November 2006.

Oct. 8, CHINA/NORTH KOREA: Chinese Vice Premier Wu Yi and a delegation from the Chinese government meet with North Korean Prime Minister Pak Bong Ju in Pyongyang. Wu says China would like to take part in North Korea’s infrastructure construction and natural resources exploration, and Pak thanks the Chinese government for assisting in building the Taean Friendship Glass Factory.

Oct. 12, SOUTH KOREA: A spokesman for South Korean President Roh Moo Hyun says South Korea wants to hold talks with the United States about regaining wartime control of its military from Washington.

Oct. 13, CHINA: Amoco PLC and Sinopec Corp., China’s biggest producer and marketer of refined oil products, say they will start talks aimed at establishing a partnership between the two companies.

Oct. 13, PHILIPPINES: The Philippine government’s peace panel produces a draft consensus with the separatist Moro Islamic Liberation Front, allowing the rebel group to create its own constitution and tax system. The government hopes to use the draft to build a final deal by early 2006.

Oct. 14, CHINA: China says the proposals offered by the United States to try to bring an end to the disagreement over textiles are unacceptable because they constitute a threat to the Chinese textile sector. The fourth round of Sino-American talks over textiles ended Oct. 13 without agreement. Chinese newspapers cited Washington’s failure to provide sufficient incentives for Beijing and the inability of both sides to agree on the scope or timeline of the agreement as reasons for the talks’ failing. Chief U.S. negotiator David Spooner said the parties were unable to come to an arrangement meeting the needs of U.S. domestic manufacturers.

Oct. 14, JAPAN: The upper house of the Japanese Parliament passes legislation to privatize the postal delivery, savings deposit and insurance services of Japan Post by 2017.


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Oct. 15, CHINA: Chinese President Hu Jintao urges freeing global trade, eliminating trade barriers, accelerating economic growth and alleviating poverty at the opening of a G-20 meeting.

Oct. 16, CHINA: China’s Shenzhou VI spacecraft safely returns to after spending five days in orbit. The spacecraft, launched Oct. 12 with two men onboard, completes China’s second successful manned mission to outer space.

Oct. 17, CHINA: U.S. Treasury Secretary John Snow says he is convinced of China’s commitment to allowing market forces to determine the yuan’s value, but warns that Beijing must show progress to hold off U.S. protectionist measures. Snow adds he has received assurances of Beijing’s will to liberalize the country’s financial markets further and to make continued progress toward a more flexible yuan.

Oct. 18, CHINA: China issues a full text proposal that outlines the country’s developmental plans for the next five years, which include reductions in trade protectionism and great allowances for domestic competition. The proposal was approved at the 16th Communist Party of China Central Committee’s fifth session.

Oct. 19, CHINA: The Information Office of China’s State Council publishes a white paper on China’s political democracy, vowing to push forward with political reforms and marking the achievements made to date.

Oct. 19, HONG KONG: The Hong Kong government releases a set of political reforms that propose increasing the number of election committee members responsible for picking the chief executive to 1,600. The government says the issue of a direct election of the territory’s chief executive and legislators will not be addressed.

Oct. 21, U.S./CHINA/SOUTH KOREA: U.S. Secretary of Defense Donald Rumsfeld ends his tour of China and Korea with a series of meetings with South Korean officials, including President Roh Moo Hyun, Foreign Minister Ban Ki Moon and Defense Minister Yoon Kwang Ung. The talks address wartime control of South Korean military forces, which South Korea wants to regain from the United States. Rumsfeld met with Chinese President Hu Jintao and Chinese Defense Minister Cao Gangchuan on Oct. 19 and discussed strengthening bilateral relations and military ties. Cao rejected the Pentagon’s claim that the Chinese government spends $90 billion on defense, saying the true defense budget is $29 billion. Rumsfeld cancelled a meeting in Japan as a part of his Asia tour over the Japanese-U.S. stalemate over the relocation of Futemma Air Station in Okinawa.


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Oct. 21, NORTH KOREA: New Mexico Gov. Bill Richardson returns from four days of talks with North Korea over its nuclear activities. Richardson says North Korea unconditionally agreed to return to the six-party talks and rejoin the Nuclear Nonproliferation Treaty. A member of Richardson’s delegation says North Korea is open to foreign management of a civilian light-water reactor to address proliferation concerns; Pyongyang has demanded a supply of light-water reactors as a precondition for dismantling its nuclear weapons program.

Oct. 22, PHILIPPINES: The United States and the Philippines begin large-scale annual military exercises in Subic Bay, a former U.S. naval base in the Philippines. The exercises involve 3,300 U.S. Marines and about 500 Philippine marines, and will continue through Oct. 26.

Oct. 23, CHINA: China uncovers 240 cases of corruption in state-owned commercial banks in the first six months of 2005, with losses totaling $198 million, an official with the State Banking Regulatory Commission says.

Oct. 24, INDONESIA: Indonesian officials say Indonesia will complete the second phase of its four-stage military withdrawal from Aceh province, withdrawing about 6,000 troops.

Oct. 27, CHINA: Chinese Premier Wen Jiabao meets with Russian President Vladimir Putin in Moscow to discuss bilateral relations and affairs within the Shanghai Cooperation Organization. Both leaders suggest a strategic partnership between their two nations is developing and remains a high priority.

Oct. 27, JAPAN/SOUTH KOREA: Japanese Foreign Minister Nobutaka Machimura meets South Korean Foreign Affairs and Trade Minister Ban Ki Moon, who strongly criticizes Japanese Prime Minister Junichiro Koizumi’s recent visit to the Yasukuni Shrine.

Oct. 28, JAPAN: Japan says the United States will be allowed to base a nuclear-powered aircraft carrier from its Yokosuka base, headquarters of the U.S. Navy’s Seventh Fleet. The non-nuclear USS Kitty Hawk is now based at Yokosuka, but is due to be decommissioned in 2008.

Oct. 28, JAPAN: Japan’s Liberal Democratic Party approves a revision of the Japanese Constitution’s Article 9 that would remove language outlawing war and would allow the military a role in security planning. The section titled “Renouncing War” would be renamed “National Security.”


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Japan’s Self-Defense Forces, or Jiei-tai, would be renamed Jiei-gun, which translates the same in English, though the word “gun” would make it clear it is a military force.

Oct. 28, SOUTH KOREA: A South Korean guard post inside the Demilitarized Zone is hit with gunfire believed to have come from North Korea.Oct. 29, JAPAN: The United States and Japan reach an agreement regarding the redeployment of 7,000 U.S. Marines from Okinawa. The agreement also lays the groundwork for restructuring the U.S.-Japanese military alliance to meet emerging threats and provides for more Japanese involvement.

Oct. 30, CHINA/NORTH KOREA: Chinese President Hu Jintao and North Korean leader Kim Jong Il hold talks, and Kim pledges that Pyongyang will return to a fifth round of the six-party talks on its nuclear weapons program. A Chinese spokesman says Kim did not give a date for a resumption of talks. Hu’s visit marks the first time a Chinese president has visited North Korea since 2001.

Oct. 31, JAPAN: Prime Minister Junichiro Koizumi shuffles his Cabinet for the first time since Sept. 11 general elections. Koizumi installs Shinzo Abe as chief Cabinet secretary, Taro Aso as foreign minister and retains Sadakazu Tangigaki as finance minister. Former Chief Cabinet Secretary Yasuo Fukuda is not renamed to the Cabinet.

U p c o m i n g

Nov. 2, VIETNAM: Chinese President Hu Jintao to wrap up his visit to Vietnam.

Nov. 2, JAPAN/NORTH KOREA: Japan and Korea to hold bilateral talks in Beijing.

Nov. 5, KYRGYZSTAN: Central Asia Regional Economic Cooperation meeting to be held in Bishkek through Nov. 6

Nov. 7, CHINA: International Renewable Energy Conference 2005 to be held in Beijing through Nov. 8.

Nov. 8, CHINA: Fifth round of six-party talks to resume in Beijing.

Nov. 15, JAPAN: U.S. President George W. Bush to meet Japanese Prime Minister Junichiro Koizumi in Kyoto through Nov. 16.


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Nov. 16, SOUTH KOREA: Chinese President Hu Jintao to meet South Korean President Roh Moo Hyun.

Nov. 17, SOUTH KOREA: Asia-Pacific Economic Cooperation summit to be held in Pusan through Nov. 19; U.S. President George W. Bush set to attend. Nov. 19, CHINA: U.S. President George W. Bush to meet Chinese President Hu Jintao.

Nov. 21, MONGOLIA: U.S. President George W. Bush to meet Mongolian President Nambaryn Enkhbayar in Ulaanbaatar.

Dec. 6, MALAYSIA: UAssociation of Southeast Asian Nations summit to be held through Dec. 14.

C h a n g e s

JapanPrime Minister Junichiro Koizumi shuffled his Cabinet on Oct. 31 for the first time since Sept. 11 general elections, following promises to install reformers in his Cabinet to promote further reform after he leaves office in September 2006.

Shinzo Abe, the new chief Cabinet secretary, was elected to the House of Representatives in 1993. He later served as deputy chief Cabinet secretary in former Prime Minister Yoshiro Mori’s Cabinet in 2000 and also in Koizumi’s Cabinet from 2001 to 2003. He was then appointed as secretary-general of the ruling Liberal Democratic Party (LDP) in 2003 and acting secretary-general in 2004. He also has been a chief negotiator for the Japanese government on behalf of the families of Japanese abucted by North Korea.

Taro Aso was moved from his post as internal affairs and communications minister to the position of foreign minister in the new Cabinet shuffle. He began his political career in 1979 when he was elected to the House of Representatives, and has since been re-elected eight times. He served as the chairman of the foreign affairs committee from 1991 to 1993 and as director of the LDP’s Foreign Affairs Division from 1992 to 1993. He has since held the positions of minister of economic planning from 1996 to 1997, deputy secretary-general of the LDP in 1999 and minister of internal affairs from 2003 to 2004.


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The new chairman of the Policy Research Council, Hidenao Nakagawa, served as minister of science and technology policy in 1996 and later as chairman of the Special Committee on Financial Restructuring and Reform in 1997. In 1998, he chaired a committee on emergency economic reforms. Nakagawa served as both minister of state for Okinawan development and minister in charge of information technology in 2000. He later served as chairman of the Affairs Committee from 2002 to 2004.

Heizo Takenaka retained his position as minister in charge of postal privatization, but was also given the post of internal affairs and communications minister, the position formerly held by Taro Aso. He was employed at the Development Bank of Japan from 1973 to 1981. He then worked for the Ministry of Finance from 1982 to 1987. He was picked by Koizumi to become the minister of state for economic and fiscal policy in 2001, serving until 2004. He also served as minister of state for financial services from 2002 to 2004 and as minister of state for the privatization of the postal services since 2004.


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