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NightWatch 20111116

NightWatch

For the night of 16 November 2011

China: The Ministry of Commerce said on 16 November that China's exports are feeling pressure from global economic uncertainties. A spokesman said the ministry cannot be optimistic about the export situation during the coming period, citing a downshift in global economic recovery, a downgrade of the US credit rating and the expansion of the European debt crisis. He said that frequent protectionist measures and trade disputes have had a "relatively large influence" on China's exports and that these issues, along with rising costs at home, have complicated China's foreign trade outlook.

Comment: The Xinhua report is significant for several reasons. First it disclosed that the Chinese government expects that the credit rating of the United States will be downgraded. Second, the Chinese economists predict a contraction of the global economy. Finally, the Chinese anticipate a contraction of globalization as the result of protectionist policies, in other words, a reassertion of economic nationalism. The Chinese seem to expect that the export markets for cheap Chinese manufactures will shrink and the prices for raw materials will rise.

The apparent Chinese linkage of the US credit rating to the European debt crisis implies that the Chinese know or believe that US banks have much greater exposure to European sovereign debt than they have admitted. The Chinese assessment evidently is that Europe will drag down the US.

One Chinese economist, a professor of finance at the Chinese University of Hong Kong, recently wrote that the Chinese banking system is nearly bankrupt already and China's Gross Domestic Product is declining, but the Chinese are hiding the data. He wrote that "every province in China is Greece."

This note is a warning to hedge bets in China in 2012.

Afghanistan: President Karzai provided details about Afghanistan's conditions for signing a strategic agreement with the United States on 16 November. Speaking at the Loya Jirga (a grand council to discuss important issues), Karzai said US personnel must stop searching Afghans' houses; they cannot detain Afghan citizens and Americans may not operate prisons on Afghan soil. Karzai said only Afghan justice and interior ministers can manage detention centers.

Comment: Karzai's statements once again reinforce the assessment that he is looking towards the end game: Afghanistan after 2014. His statements represent an official repudiation of the tactics the US considers the most useful in containing the Taliban.

While it is good politics for Karzai to put distance between his government and US military operations, his government's conditions also embody the negative judgments of Afghans about the application of US counterinsurgency doctrine to Afghanistan.

Kuwait: Dozens of Kuwaiti protesters "stormed" (sic) parliament late on Wednesday, as hundreds more demonstrated outside. Eyewitnesses said they were demanding that Prime Minister Sheikh Nasser al-Mohammad al-Sabah step down.

Hundreds of people, including opposition lawmakers, have been protesting weekly outside parliament over alleged corruption. Some reports said riot police had beaten demonstrators using batons as they gathered outside parliament.

Nevertheless, some people managed to get inside. No confrontation happened with the National Guard which is guarding the building," junior doctor Mohammed told the BBC World Service.

"People are asking for more reforms, and especially as recently the government has not been going with the spirit of the constitution, which some regard as the absolute minimum of democracy."

Comment: The Arab spring belatedly has reached Kuwait. Some news outlets attribute the delay in its arrival to Kuwait's generous welfare payments system.

As in Syria, the initial group of protestors advanced complaints about the pace of political reform. The protestors have not demanded the overthrow of the government system. That is an important benchmark. If protests in Kuwait evolve the way they did in Egypt and Syria, Islamists will emerge to take over the reform movement, escalate moderate demands and call for the overthrow of the political system and its replacement with an Islamic emirate.

For the record: Agence France-Presse reported that "thousands" of people were involved in the protest. Local news services reported a concerted, but much smaller number of activists.

Iran-Syria: Establishing contact with the Syrian opposition is not on Iran's agenda, according to a 16 November statement from the Iranian Embassy in Damascus. Contact will be coordinated closely with Syrian officials if the need for it arises, according to the statement.

Comment: The background for this Iranian comment is not clear, but the meaning is beyond doubt. Iran intends to lend no authority or legitimacy to the Syrian opposition activists. What's more important is that it perceives no need to do so at this time.

Despite the action by the Arab League over the weekend, Iran still supports the Alawite regime in Damascus. Iran's statement today provides additional indirect evidence that Syria is a battle ground for a proxy fight between Tehran and Riyadh. Tehran is winning thus far.

Israel-Syria: For the record. The fall of Syrian President al-Asad's regime would put an end to Israel's existence due to the rise of Muslim Brotherhood-led Islamic aggression bordering Israel, senior Israeli defense official Amos Gilad said on 16 November. Asad's regime serves the interest of Israel, Gilad said.

Comment: Major General (reserves) Gilad is the Director of Policy and Political-Military Affairs in the Ministry of Defense.

Egypt: The only female presidential candidate in Egypt accused the Egyptian generals of undermining progress towards a representative, democratic government. Ms. Bothaina Kamel recounted that the top generals initially said they would relinquish power six months after the popular uprising. Instead they have extended the transition period to allow political parties to build support before elections.

Parliamentary elections are scheduled for 28 November and presidential elections will be held either at the end of 2012 or 2013.

Kamel voiced concern Field Marshal Hussein Tantawi would also stand for president. "And now we have some kind of campaign in Egypt, a campaign for General Tantawi as president," she said. A campaign run by local youth called "Egypt Above All" said it aimed to gather one million signatures to back Tantawi, who heads the 24-member ruling military council.

Comment: The most significant accusation is that Field Marshal Tantawi is running for the presidency, but wants to be drafted by a ground swell of public support. This betrays the Army's promises and reinforces the conclusion that a revolution - a change of government system -- has yet to take place in Egypt.

Kenya-Somalia: Kenya has offered to send troops to help the African Union (AU) force fight against Islamist militant group al Shabaab in Somalia.

A meeting between the Somali, Kenyan and Ugandan presidents resulted in the welcoming of Kenya's offer to deploy troops to the African Union Mission in Somalia (AMISOM), according to a statement from Kenyan President Mwai Kibaki's office. The statement did not clarify whether the contribution would consist of new troops or whether Kenyan soldiers already in Somalia would join AMISOM.

The leaders stressed the need to enhance coordination between AMISOM, Somali government forces and Kenyan Defense Forces to defeat al Shabaab.

Comment: AMISOM consists of 9,000 Ugandan and Burundian soldiers, but is supposed to total 20,000, based on African commitments. Kenya is believed to have deployed a reinforced brigade of about 5,000 soldiers with tactical air support into Somalia.

The Kenyans appear to be in Somalia for the long haul. The logistics supplier of the Kenyan operations remains unclear in open source materials. Press accounts indicate the French and the Americans have accused each other of supporting Kenya.

Kenyan operations are the main good news from Somalia.

Italy: Mario Monti formally accepted his nomination as Italian prime minister in a meeting with Italian President Giorgio Napolitano on 16 November, a spokesman for Napolitano said. Monti also will act as the Italian economy minister, officials said.

Monti did not appoint many "politicians" to fill his Cabinet, La Stampa reported. However, politicians support his government without being a part of it, Monti said.

Comment: Monti is an economist. Apparently, the European Union bankers prefer to have technocrats run the governments of its members. Berlusconi remains involved in politics and will not let Monti compromise Italian sovereignty to the Brussels pan-nationalists.

The key question is whether a cabinet of professionals and academics can do better than the elected representatives of the Italian people in implementing austerity measures demanded by an outside power, the European Union. Berlusconi and his political hacks failed. Now it is the turn of the professionals to try to do better. The problems appear to be structural, which means the professionals will have no greater success than did the politicians in stabilizing the Italian financial sector.

End of NightWatch for 16 November.

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