Due to the Easter holiday, we will not be posting a Weekly Market Update this Saturday.

The global order is entering a phase of multipolarity where a variety of ideological and political ideas are at the forefront of global leadership. To promote international stability and cooperation, there will need to be a shift in how global powers communicate and coordinate on global issues such as climate change, nuclear proliferation, and pandemics. Any possibility of stability and great-power coordination can only come if key players are willing to respect others sovereignty and set ideological differences aside.

US Fears China is Flirting with Seizing Control of Taiwan

Demetri Sevastopulo and Kathrin Hille, Financial Times

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Following an incursion of twenty Chinese warplanes into Taiwan’s air defense zone last Friday, the US has become increasingly concerned that China may soon take military action against Taiwan.  As it seems likely that Xi Jinping will enter his third term in 2022, China appears to be willing to accept more risks in its continuing effort to re-acquire Taiwan.  A senior US official describes the Taiwan reunification bid as Xi’s “capstone” and “important to his legitimacy and legacy.”  Several US admirals have raised concerns that China could even act within the next six years, given the centenary of the founding of the People’s Liberation Army in 2027.  While Taiwanese officials are less vocally concerned than their US counterparts, the backdrop of US-Chinese rivalry looms over the discussion.  The contentious meeting between US and Chinese officials highlighted the tensions bubbling to the surface.  With China’s increasingly aggressive stance towards the South China Sea, India, and Europe, it is unlikely that the situation in Taiwan will de-escalate in the foreseeable future.

NATO’s Top Civilian Warns on China, Climate and Cyberhackers

James Stavridis, Bloomberg

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In an interview the author of this article, former NATO supreme allied commander James Stavridis, questions Secretary General of the North Atlantic Treaty Organization (NATO) Jens Stoltenberg on his vision for the transatlantic alliance. The discussion centered on “the three C’s”: China, climate, and cyber. NATO has received increased pressure from the US to balance the growing power of China even though it is outside of the North Atlantic area. While the secretary general chose not to speak on whether or not NATO will be directly involved in countering China, he did point out that several allies are already doing so. For example, the United Kingdom, France, and Germany will all be sailing in the South China Sea in support of freedom of international waters and in solidarity with the US. Furthermore, NATO intends to strengthen its relationships with Asia-Pacific allies such as Australia and Japan.

On the climate question, Stoltenberg mentioned several reasons why NATO should be and will be involved in climate issues. Climate change is creating geopolitical crises that are affecting Europe and North America, melting polar ice caps which are opening critical sea lanes in the high North, and leading to natural disasters which NATO militaries have responded to. In response to climate change, NATO will seek to reduce its carbon footprint across member states. Finally, the secretary general signaled that the alliance is committed to countering the challenges posed by cyberattacks. NATO’s approach is clear: maintain the “cyber perimeter” of NATO’s command-and-control systems, increase information-sharing on cybersecurity, continue financial support of the NATO Cooperative Cyber Defense Center of Excellence in Tallinn, Estonia, and watch Russian activities closely. Stoltenberg noted that any significant cyberattack would trigger the alliance’s commitment under Article V, “an attack on one is an attack on all”. These “three C’s” will undoubtedly shape NATO’s objectives in the coming years and are a primary reason why the alliance needs to publish a new Strategic Concept, something that has not been done for more than 10 years.

The New Concert of Powers

Richard Haass and Charles A. Kupchan, Foreign Affairs

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The world is becoming increasingly multipolar and the Pax Americana era is coming to an end, whether the US likes it or not. History shows us that periods of change and great-power contests over hierarchy and ideology often lead to major wars. In order to prevent this and promote global stability, Richard Haass and Charles A. Kupchan argue that a global concert of major powers should be established. This proposed global concert would have six primary members: China, the European Union, India, Japan, Russia, and the US. The African Union, Arab League, Association of Southeast Asian Nations (ASEAN), and Organization of American States (OAS) would be invited as informal members to provide their region’s representation. The two key characteristics of this global concert would be political inclusivity and procedural informality. The concert’s inclusivity would bring everyone to the table, highlighting matters of international cooperation and setting aside ideological differences. Instead of being a decision-making body like the United Nations (which is criticized for being too formalistic and bureaucratic), a global concert would be consultative, relying on dialogue to build consensus and cooperation. This informality would allow the group to adapt to a changing world that is politically and ideologically diverse. It would also give members the ability to act unilaterally while, ideally, promoting an environment where countries can “agree to disagree” on issues of democracy and political rights without hindering international cooperation on key issues. To ensure “great-power solidarity”, the authors explain that the global concert should focus on two priorities. First, members must show respect for existing borders and sovereign territory, resisting territorial changes through coercion or force. Second, the concert should emphasize creating collective responses to global challenges while also investing in long-term efforts to adapt to global change. While a global concert would not be a “panacea”, it could be a way to “advance great-power coordination, maintain international stability, and promote a rules-based order” all of which are critical to a multipolar world.

China’s Markets are Shaking Off Their Casino Reputation

The Economist

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China’s capital markets have long been something of an enigma in the world of professional finance, marked by opaque lending attitudes, retail idiosyncrasies, and a complex web of regulations.  However, a dip in March corresponding to a drop in US equities may indicate that these trends are stabilizing into a more professional, interconnected Chinese market.  While the highly conservative banks are barred from investing in the capital markets (resulting in a 80-20 split between retail and institutional investing in the nation), new checks and balances have allowed wealth management groups to act more freely.  Investors have begun funneling money into mutual and hedge funds, and institutional trading could grow to as much as 50% of daily volume in the next five years.  As Chinese domestic markets have opened to foreign investors and institutions (though with limitations on liquidity and holding sizes), there is much potential for foreigners to participate in China’s long-lauded growth.  That said, the size and power of the state in the Chinese economy cannot be overlooked – between wide-ranging regulations and state-owned firms, the markets are likely to reflect the desires of the Chinese Communist Party in nearly every scenario.  While the standardization and stabilization of Chinese markets has been a boon for investors, the underlying dynamics remain fundamentally separate from Western markets and pose a unique set of challenges.