Misreading Missiles
In Asia the real risks are not always the perceived risks.
By Ian Bremmer

(FORTUNE Magazine) -- Asia has more geopolitical hot spots than any region in the world. Political analysts and investors worry that North Korea might stumble into nuclear war with the U.S., that China might invade Taiwan, and that historical enmity might generate an Indian-Pakistani nuclear collision.

We've lived with these possible conflagrations for so long we've begun to think of them in shorthand, without examining their evolving nature. There are real risks in these danger zones - but not the ones accepted as conventional wisdom.

Take North Korea's long-range missile test in July. The political fight over Pyongyang's nuclear development is stuck so deeply in the mud that not even a rocket could dislodge it: Japanese and South Korean markets fell only slightly on the news.

In part that's because the missile failed less than a minute after liftoff. But investors seem unfazed by threats that North Korea will continue testing until it gets it right. The reason: Washington has no way of forcing Pyongyang to dismantle its nuclear program. The U.S. isn't about to invade a state that has nuclear weapons, enough conventional arms to destroy South Korea, and one of the largest standing armies in the world.

North Korea suspected before the tests that no punishment would be forthcoming. But the missile launches brought it no closer to winning an incentive package similar to the one the West has offered Iran.

Pyongyang has few options. It could give up escalation and try to work within the constraints of six-party talks. It could launch more missiles. It could even test a nuclear weapon, though China and South Korea might take such a move seriously enough to stop ignoring Chairman Kim Jong-il's belligerence. Kim may believe he can win new prizes by further rocking the boat, but he lacks the heft to capsize it.

Yet North Korea's saber rattling is generating two real risks worthy of attention. It may prod the U.S. and Japan toward closer cooperation - including a joint missile-defense program - and it may help Japanese lawmakers press ahead with efforts to amend the constitution to allow Japan's military a more assertive role in Asia. Neither of those prospects may mean much to North Korea, but they're serious concerns for China.

Sino-Japanese tensions have been high for months. The two states have sparred over the maritime boundary that establishes their rights of access to potentially lucrative natural-gas fields in the East China Sea. Visits by Japanese Prime Minister Junichiro Koizumi to the controversial Yasukuni Shrine and accusations that Japan continues to shirk its responsibility for World War II aggression have aggravated historical grievances and sparked angry demonstrations in China.

But they are merely proxy squabbles for the deeper sources of conflict pitting the two governments against each other. Japan is East Asia's established economic power. China's fast-growing political, economic, and military clout thrusts it into the arena as Japan's primary challenger. North Korea's missile launches may not affect regional stability. But its aggressiveness could trigger new assertiveness in Japan and exacerbate its growing rivalry with China, particularly if, as expected, the more hawkish Shinzo Abe succeeds Koizumi as Prime Minister this fall.

Nor do ongoing tensions across the Taiwan Strait pose the near-term risks that many fear. China has no need to invade Taiwan, and the Taiwanese lawmakers with the most to gain from provoking the mainland are in no position to spark a military confrontation. The possibility that an unforeseen event could sharply ratchet up tensions and roil Asian markets cannot be discounted, but this threat is lower today than at any time in the recent past.

In Taiwan, domestic scandals and political missteps have isolated President Chen Shui-bian, China's chief antagonist on the island. The increasingly unpopular Chen faces many months as a lame duck before he leaves office. And the U.S., the ultimate guarantor of Taiwan's security, has made clear to both Taipei and Beijing that it will not support provocative steps toward Taiwanese independence.

China's best insurance against an escalation of conflict is the success of its One China policy. Beijing has promoted deeper economic integration of Taiwan with the mainland by enticing waves of Taiwanese businessmen to invest in and relocate operations to China.

It has offered tax breaks, low-cost access to land and infrastructure, and other incentives. In the process it has provided Taiwan's business elite with a stake in China's growth. The real risk is that China's leaders may decide they have enough influence and no longer need Taiwanese investment. If that happens, an important engine of Taiwan's economic growth could be held captive to politics in Beijing.

Despite the recent bombings in Mumbai and the assertions of some within the Indian government that Pakistan has not done enough to rein in extremist groups, Indian-Pakistani relations remain more stable and constructive today than at any time since the bloody partition that separated the states in 1947. As a measure of how far the bilateral relationship has grown, consider India's recent missile test, five days after North Korea's: The Pakistani government was notified in advance and expressed no concerns.

The stability is due in large part to an improvement in India's relations with two traditional Pakistani allies, the U.S. and China. In March, President Bush and Prime Minister Singh reached a historic agreement on civilian nuclear cooperation, reversing U.S. opposition to India's nuclear status - a deal likely to be approved with few changes.

Delhi has also leveraged commercial ties with China to enhance its political relationship. And its economic reforms have given it new self-confidence. Cutting through the tangled undergrowth of issues surrounding the disputed territory of Kashmir will take tremendous effort, but Delhi now has too much to lose from heightened tensions with Pakistan.

The real risks in South Asia are to Pakistan's domestic stability. President Musharraf, who has survived three assassination attempts, faces threats on a number of fronts. His ability to extend the life of his government beyond the next election in September 2007 could depend on shoring up support from the Islamist Muttahida Majlis-e-Amal alliance, which has backed him in the past. Opposition parties have criticized his military regime. And the army is engaged in battles with Islamic radicals along the border with Afghanistan.

Long-term stability in Pakistan depends not on the survival of its President but on the establishment of durable political institutions. Since rising to power in a 1999 military coup, Musharraf has tried to rule as an autocrat while binding himself to the compromises needed to sustain at least the appearance of democracy. His government and Pakistan's political health are now held hostage to alliances of convenience with unpredictable partners.

Asia will continue to generate political risks. But as its influence on international politics and global markets grows, it is the emerging threats, not the old standbys, that could damage the region's--and the world's --political and economic stability.

IAN BREMMER is president of Eurasia Group, a political-risk consultancy. He is the author of the forthcoming The J Curve: A New Way to Understand Why Nations Rise and Fall (Simon & Schuster).

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