China Is Winning The 21st Century Space Race

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At a cost of more than $150 billion, the International Space Station (ISS) is the most expensive object ever built.  This price tag is more than double the combined costs of China’s Three Gorges Dam, Boston’s Big Dig, and the Chunnel. But as noted by CNN, funding for the ISS may run out in the early 2020s.

That happens to be around the same time that the Chinese are expected to complete their own space station, potentially leaving the Asian power with the sole operating lab in the heavens. And given that Congress banned NASA from working bilaterally with anyone from the Chinese space program, it’s unclear if American astronauts will be welcome.

The Chinese space station is merely one part of the Middle Kingdom’s extraterrestrial ambitions. Tinkering in the heavens has emerged as an important plank of its geopolitical strategy. And if recent history is any guide, the Chinese are serious about their plans in space.

To begin, their program has already accomplished a great deal over the past few years. In 2013, China became the third nation—after the United States and the Soviet Union—to soft-land a spacecraft on the moon. In 2014, the country also sent a probe around the moon and back, the first such mission since the 1970s.

But China has even grander plans. These include a 2018 mission to send the first probe in history to land on the “dark side” of the moon, whose extraordinary geology is largely unexplored. Other plans aim to bring back lunar samples as well as to land humans on the surface of the moon. The country has Martian ambitions as well.

What are the Chinese doing? Why the increased focus on space and specifically the moon? I see several reasons.

First, China views space as a potentially game-changing source of energy security. Specifically, the moon has abundant supplies of helium-3, a light and non-radioactive fusion fuel that is virtually non-existent here on Earth. Because it lacks an atmosphere and has been bombarded by solar winds containing helium-3 for billions of years, the moon has massive volumes of the isotope. Some estimates suggest there are at least 1.1 million metric tons of helium-3 on the lunar surface, enough to power human energy needs for up to 10,000 years.


Lunar helium-3 has the potential to power human energy needs for 10,000 years.


With one of the fastest-growing appetites for energy on the planet, the Chinese are highly aware that securing access to this other-wordly fuel would be a huge strategic advantage. Interestingly, Silicon Valley is also vying for the moon’s helium-3, spurred in part by the $30 million Google Lunar XPRIZE.

China is also pushing into the heavens to encourage technological developments. Just as America’s response to Sputnik fueled basic research and applied science, so might China channel its out-of-this-world ambitions into useful developments here on Earth. In fact, the chief scientist of China’s lunar exploration program cited the spillover benefits expected in information technology and materials science as a key motivator of the program.

The Chinese are also keenly aware of the military significance of space. A 2015 US congressional report explained how “for China’s military, the use of space power can facilitate long-range strikes, guide munitions with precision, improve connectivity, and lead to greater jointness across its armed forces.” The document described a Chinese leadership that thinks that “space warfare is inevitable” and that China must dominate it. It’s worth noting China’s recent testing of anti-satellite weapons.

Finally, there is no question that Chinese success in space will be a source of pride and support rising nationalism. It will give China bragging rights and have a unifying influence on the country. In fact, Lieutenant General Zhang Yulin discussed his space ambitions in terms of the “great rejuvenation of the Chinese nation.”

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As we focus on China’s terrestrial power plays, from its trillion dollar Silk Road to its construction of artificial islands in the South China Sea, we must also watch the emerging geopolitics (“exopolitics”?) of outer space. Dismissing distant developments overhead may prove as detrimental, if not more so, than ignoring those in front of our noses.

The $2 Billion Market For Passports

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As migration and inequality continue to get significant attention from US presidential candidates, it is worth noting a rising phenomenon at the intersection of these two topics: economic citizenship. A growing number of countries offer individuals passports in return for investment, and the wealthy have been taking advantage in increasing numbers. In 2014, the global rich spentan estimated $2 billion acquiring nationalities.

The Caribbean is the global capital of “citizenship-by-investment” programs. A passport from Dominica can be had in return for a $100,000 investment. A $400,000 real estate investment or a $250,000 donation to a development fund will get you citizenship in St. Kitts and Nevis. Similar sums are required for a passport from Antigua and Barbuda, plus five days of residency over the first five years of citizenship. In 2015, Caribbean nations effectively sold an estimated 2,000 passports through citizenship-by-investment programs, up 100% over the past five years.

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But it’s not just Caribbean nations hawking passports. Cyprus, for instance, offers citizenship in return for a minimum €2.5 million real estate investment. Further, not all countries sell citizenship outright. Some, including the United States and the United Kingdom, offer residency—and a path to citizenship—to wealthy investors. In the US, for example, aspiring citizens that invest $500,000 and create 10 jobs can apply for an EB-5 visa. The UK requires an investment of at least £2 million. Both countries expect investors to spend roughly half the year in residence for several years before applying for citizenship. And almost all economic citizenship programs have fees that are paid directly to governments in addition to the required investment.

So why is the market for passports booming? Some point to the efforts of a Swiss lawyer named Christian Kalin, a man labeled by Bloomberg as the “passport king.” Kalin’s firm, Henley & Partners, is the world’s leading citizenship planning firm and also advises countries on how to design these programs. The firm was a sleepy immigration consultancy that also helped with wealth management. But then in 2006, Kalin advised St. Kitts on setting up its economic citizenship program, and the results were stunning.

By selling passports, St. Kitts and Nevis slashed its "debt from 164 per cent of GDP in 2010 to 104 per cent of GDP at the end of 2013.” By 2014, passports were the country’s biggest export, money associated with the passport business accounted for at least 25% of GDP, and the development it spurred on the islands led to what some were calling a real estate bubble.  Other indebted nations took notice of Kalin’s ability to create a resource for a country that didn’t have any. The supply of passports for sale ballooned.

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But demand also boomed as investors sought second passports in record numbers. Many are fleeing domestic instability, whether war or political uncertainty.  Middle East unrest has been a driving factor in the popularity of economic citizenship programs: Henley and Partners notes its business has doubled since the start of the Arab Spring. Even more important has been the outflow of wealthy Chinese and Russian citizens, who dominate citizenship-by-investment and related programs, according to the IMF. For example, 80% of American EB-5 visas go to Chinese nationals, while Russian and Chinese “investors” buy roughly 50% of the passports sold by St. Kitts and Nevis.


80% of EB-5 visas go to Chinese nationals.


 

A second passport is more than a means of escape and a hedge against uncertainty. It can enhance the mobility of nationals from diplomatically-fraught countries—especially in a post-9/11 world. Passports from Iran, Iraq, and Pakistan, for example, will get you into fewer than 40 countries visa-free (just behind North Korea), while a passport from St. Kitts and Nevis will get you into 131. The very best passports, including those from the US, UK, and Canada, will get you into 170 or more.

Of course, this added mobility might also be used to break the law. In 2014, both Canada and the United States condemned the citizenship-by-investment program run by St. Kitts and Nevis for helping Iranians skirt sanctions. The island nation, seeking to protect its cash cow, recalled thousands of passports and implemented higher standards.

Another reason wealthy investors might want to pursue economic citizenship is for tax purposes. Americans living abroad, for example, are required by law to pay taxes in the United States. Trading in a US passport for one from St. Kitts and Nevis would lower one’s tax rates to 0% on income and capital gains. Of course, to do this requires an American to renounce his or her citizenship.


Trading in a US passport for one from St. Kitts and Nevis would lower one’s tax rates to 0% on income and capital gains.


 

So what does the future hold for the economic citizenship market? Given unprecedented global economic and political instability, it seems likely demand for passports among the global elite will remain strong for years to come. But at the same time, an increasing number of indebted nations will look to economic citizenship programs as a means to attract capital. One result may be lower costs for a passport; another might be lowered diligence standards that ultimately provide evildoers greater security and enhanced mobility.

Whatever happens, the passport market is, along with art markets, a fascinating indicator of confidence levels among the global elite. One way to interpret alternative citizenship is as an insurance policy. And as any insurance underwriter will note, a sudden surge in coverage is not a good sign. For this reason alone, it’s worth watching the evolution of this market.

Syria, Climate Change, and Navigating Uncertainty

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This week marks the fifth anniversary of the start of the conflict in Syria. The costs of the war are staggering: it has claimed almost half a million lives, wounded close to 2 million people, generated 4.8 million refugees, and displaced almost 7 million people within Syria.

To put these numbers in perspective, imagine a conflict that killed off everyone in Atlanta, wounded every single person in San Francisco and Dallas, led everyone in Chicago and Houston to leave the country in search of safety, and drove everyone living in Los Angeles, Philadelphia, Boston, and Seattle from their homes to other cities and states.

Another way to think of the scale of the war is in terms of population percentages. Imagine if the US had 9.6 million people killed, 32 million wounded, 76.8 million refugees fleeing from America, and 96 million people displaced from their homes—that would be a catastrophe proportional to what the Syrian people have endured.

No matter how you think about it, the impact of the Syrian Civil War has been enormous.  Unsurprisingly, Syria’s 5-year war has unleashed geopolitical chaos.

Yet tentative signs of progress are emerging as negotiators meet this week amid a ceasefire to discuss how to end the violence for good. And in a potentially positive development, Vladimir Putin ordered his troops to withdraw from Syria as talks were ongoing.

As we hope for peace half a decade after the conflict’s start, it is also worth peering backward to understand how we got to this point in the first place. It may be surprising for some to learn that a major contributor to the conflict was climate change.

Starting in 2006, Syria suffered its worst drought in 900 years, which ruined farms, forced as many as 1.5 million rural denizens to crowd into cities alongside Iraqi refugees, and decimated the country’s livestock. Water became scarce and food expensive. The suffering and social chaos caused by the drought were important drivers of the initial unrest.

Climate scientists have argued that global warming very likely exacerbated the historic drought, thanks to potentially permanent changes to wind and rainfall patterns. Thus, even if negotiators do reach a resolution, the underlying strains in the region may be here to stay. In fact, almost half of the countries most at risk of water shortages in the coming decades are in the Middle East or North Africa.

The sad reality is that supply disruptions are increasingly likely at the same time as the world is facing rising demand for water. The toxic combination of population increases and water-intensive lifestyles driven by affluence may lead to devastating price spikes. Expect water wars in the decades ahead.

But climate change will impact more than access to water. The Pentagon recognizes global warming as a significant strategic threat, saying that it could it could cause "instability in other countries by impairing access to food and water, damaging infrastructure, spreading disease, uprooting and displacing large numbers of people, compelling mass migration, interrupting commercial activity, or restricting electricity availability.” Further, the US military fears such disruptions could "create an avenue for extremist ideologies and conditions that foster terrorism.”

The conflict in Syria is a case in point. Consider three developments from the war: the rise of ISIS; the migrant crisis and the resulting political upheaval across Europe; and Barack Obama’s decision not to enforce the “red line” on chemical weapons that may come to define his foreign policy.

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The link between climate change and the conflict in Syria is a reminder that decision-makers need to scan widely when assessing risks and opportunities. Methods like scenario planning can force us to thoroughly consider possibilities that at first seem improbable.

Think of food prices and how they may affect our world. If food prices were to fall 50%, who would benefit? Most of the world would. Who would suffer? Food producers. Now what if food prices were to rise by 50%? Given families in Pakistan and Indonesia spend more than 40% of their budgets on food, might a price spike generate unrest in these countries?

Teasing out the global implications of truly disparate factors is critical for navigating uncertainty. In a world of constant information overload, though, this is easier said than done. Because many of us drown in data and are overrun by stampedes of information, we value focus and the ability to filter away noise. The problem with focus is it assumes we know what matters and that we know what doesn't, enabling us to ignore what we think of as "noise."  Too often, however, we filter away signal with noise and miss possible insights.  We throw the proverbial baby out with the bathwater.


The problem with focus is it assumes we know what matters.


For that reason, we must distract ourselves out of our professional tunnel vision to successfully navigate our radically complex, intertwined world. Given the enormous potential dangers lurking ahead, forcing ourselves to connect seemingly unrelated dots will help to ensure a brighter, safer future for all.

 

Silicon Valley, Spies, and Empathy

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Earlier this week, MIT welcomed a distinguished guest to speak as part of its Internet Policy Research Initiative: Robert Hannigan, director of GCHQ, Britain’s version of the National Security Agency. Extending an olive branch to a fiercely skeptical audience, Hannigan tried to clarify the elusive balance between cybersecurity and national security when it comes to encryption.

His talk in Cambridge took place amid a raging legal battle between Apple and the FBI regarding the tech giant’s refusal to unlock an iPhone belonging to one of the San Bernardino shooters. The FBI needs Apple to modify the operating system on the attacker’s phone so that it can gain access to its contents; without doing so, the phone’s contents would be automatically erased after ten failed attempts to guess the shooter’s password. By circumventing this automatic self-destruct mechanism, an Apple-written “backdoor” to the device would enable the FBI to gain access to the phone by trying every possible password.

Apple argues that the FBI is imposing an unfair burden on the company and is violating its right to freedom of speech. It’s relying on prior cases in which software code has been deemed a form of speech. Major tech firms including Google, Amazon, Facebook, and Microsoft have lined up in support of their traditional rival.

Silicon Valley fears that a ruling favorable to the FBI would set a precedent that ultimately undermines the tech industry’s ability to secure its products. Given any “backdoor” access available to law enforcement might be exploited for nefarious purposes, customers might grow wary of using these devices. Ultimately, the move could undermine both the industry’s and the country’s economic interests.

The GCHQ director stressed he did not come to offer a panacea to such dilemmas. Instead, Hannigan argued, solutions would have to be diverse and dynamic to address different contexts and shifting circumstances.

In a controversy that often is framed as a binary (privacy vs. security, backdoor vs. locked), he suggested all involved might benefit from looking beyond a simplified black and white characterization. Engineers asking questions after his talk seemed fiercely skeptical. One cryptographer asked why he shouldn’t include Britain’s spy agency in his "threat model," given allegations of abuses. Another attendee questioned the director’s assertion that TOR, an anonymous networking tool, was predominantly used by criminals. A third expressed skepticism toward the British courts' Orwellian distinction between “bulk collection” and “bulk surveillance.”

The lively debate was a testament to the increased public scrutiny heaped on spying agencies since Booz Allen Hamilton contractor Edward Snowden leaked documents detailing the practices of the NSA and GCHQ. Although many had suspected the scale of these surveillance efforts was enormous—in part thanks to earlier whistleblowers like William Binney and Thomas Drake—Snowden’s files drew public attention to the tension between privacy and large-scale information gathering in the name of security.  But how can we debate the trade-offs between the cybersecurity of individual devices and our national security interests? Aren’t both important?

The case of the San Bernardino shooter’s iPhone has highlighted the intractability of this predicament more clearly than ever. Given the critical importance of both cybersecurity and national security, prioritizing one over the other is no trivial task. Indeed, FBI Director James Comey said it was the "the hardest question I've seen in government,” and Hillary Clinton called it the “worst dilemma ever.” Clearly, there are no easy or obvious answers.

Apple supporters argue that mandating restrictions on security would endanger those that rely on the encryption, including journalists and activists in foreign countries. Indeed, as Bloomberg View columnist Eli Lake has pointed out, the US government has helped develop and spread user-friendly encryption technologies for precisely this reason—to support dissidents from China to Russia. Critics argue that such strong encryption enables criminals to communicate without fear of detection.

Given the situation’s complexity, the GCHQ director's call for open, calm, nuanced public dialogue appears sound. Whenever participants in a debate frame problems in black and white and call for silver-bullet resolutions, it’s best to summon the most potent superpower we humans have: empathy. It’s essential that we try to see and feel the perspectives of those with whom we disagree.


The GCHQ director's call for open, calm, nuanced public dialogue appears sound.


 

It may well turn out, as advocates of tech firms suggest, that there is an unacceptable security trade-off in accommodating law enforcement’s demands. But it’s also possible the opposite is true – might technology prevent law enforcement from ensuring our safety? So before you dig your heels in to a position and defend it at all costs, try to see the world differently. In the privacy camp defending cybersecurity at all costs? How would you feel if you had family members killed in the San Bernardino attack? Or if threats were made today against you or your family? Convinced that law enforcement should take priority? What if hackers could track your every move, every communication? Would that make you feel safer or more vulnerable?

We humans tend to prefer clearly defined and certain situations rather than more ambiguous ones. Seeing the world through the eyes of those with whom we disagree is one way to appreciate complexities. Indeed, adopting multiple perspectives may offer our best hope for finding common ground. When it comes to cybersecurity, privacy, and national security, doing so may lead us, as Hannigan suggested, to a hodgepodge of partial, diverse, and impermanent solutions. As unsatisfying as that may seem, it may be the best we can hope for at this point in time.

Taking a step back, analyzing the situation from multiple perspectives, and empathizing with those with whom we disagree is the best chance we have to tackle this and the many other conundrums we will increasingly face in the hyper-connected 21st century.

China’s Trillion Dollar Silk Road

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Two weeks ago, a 32-container train from Wuyi, China arrived in Tehran, Iran. You might think the arrival of cargo by rail would be no big deal, but in this case you’d be wrong. This was the first journey of its kind between the two cities, and it shortened the typical (ship-based) travel time separating them by 30 days. This new connection is among the first visible signs of a massive trade network that China is currently constructing across Eurasia. The Silk Route is being rebuilt.

Known as “One Belt, One Road,” China’s plan to build veins of trade over land and sea into Europe and Asia—announced in 2013—may be the most significant global economic initiative in the world today, and it’s not getting the attention it deserves in Western media.

The initiative is gigantic, with future investments of almost a trillion dollars already announced. That compares to an inflation-adjusted $130 billion America spent on the Marshall Plan following the Second World War. China’s web of trade would span over 60 countries that are home to 4.4 billion people—more than half of the world’s population. Further, the initiative would interact with economies representing more than 40% of the world’s GDP. It’s a massive program that has the potential to affect global trade patterns.


“One Belt, One Road” may be the most significant global economic initiative in the world today.


 

The initiative is broken into a land component (known as the “Silk Road Economic Belt”) and a sea component (called the “Maritime Silk Road”). The “Belt” will consist of a number of corridors connecting China to the far reaches of Eurasia by road and rail. The “Road” will involve the development of ports and shipping routes connecting Chinese harbors to Europe and the South Pacific.

Funding this massive program is not a trivial undertaking. There are a number of institutions on hand to support the funding of China’s grand vision. First, Beijing started a $40 billion “Silk Road Fund” that has already helped fund a hydroelectric power project in Pakistan and invested in a liquefied natural gas project in Russia. Second, there’s the newly created, $100 billion Asian Infrastructure Investment Bank, 26% of whose voting rights China controls. It’s logical to assume it might finance some of these projects. Lastly, the China Development Bank announced in June that it would invest a stunning $890 billion dollars in over 900 “One Belt, One Road” projects across 60 countries.

So why would China want to deploy capital in this way? After all, doesn’t it face a massive domestic slowdown and potential debt crisis that warrant financial prudence? Why invest abroad aggressively when there are potential domestic needs? There appear to be two main reasons: one related to the Chinese slowdown and economic vulnerabilities, the other to geopolitical ambitions in the region.

First, China faces significant overcapacity in its steel and construction sectors. Building roads, ports, rails, and other infrastructure will help deploy some of these otherwise idle human and capital resources. Investing abroad might also strengthen the economies of nascent trading partners, thereby securing future demand for Chinese goods and services.  There’s also the issue of rising domestic labor costs: better trade networks would help Chinese firms offshore manufacturing more efficiently.

Shougang Capital Iron and Steel Group Announce New Factory

It will also foster greater trade and energy security. The current maritime trade routes Chinese goods flow through are deeply vulnerable to blockade, which in a time of war could crush the economy. The Silk Road initiative will keep markets open for Chinese goods but also secure China’s access to energy. Last spring, China announced it would support over $20 billion worth of infrastructure projects in Kazakhstan, a potential energy partner. It is also planning a 2,000 mile high-speed railway from western China to Tehran, in part to gain easier access to the growing supply of Iranian oil.

In addition to bolstering its economic strength, “One Belt, One Road” will also generate significant geopolitical clout for Beijing throughout Southeast, South and Central Asia as well as the Middle East and parts of Africa and Europe. Just consider the influence China will have in Pakistan. Beijing has already launched a $46 billion infrastructure program in Pakistan, which will double the energy-poor country’s electricity supply. In return, China will secure access to the port of Gwadar, minimizing the time for goods to transit from inland Chinese cities to global markets. Investing in Pakistan will help develop western China.

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The Pakistani alliance is particularly useful, since China can use it as a counterweight to India’s influence in the region, and controlling instability in Pakistan through investment might lessen the risk of it spilling into China. Beijing already has growing concerns of restive minorities within China and wants to minimize the likelihood of domestic instability gaining momentum from external sources.

Despite the clear benefits the Chinese strategy seems to offer, it’s not without risk. The Financial Times pointed out that the sheer ambition of the project is part and parcel with the fragmented and often contradictory process of economic policy-making in China. How implementation goes is anyone’s guess.

Further, Chinese inroads abroad could produce international tensions. Putin has signaled openness to cooperating with the initiative, but it remains to be seen how far he will tolerate Chinese influence in Central Asia.

And the countries that are part of this new Silk Route are not without significant credit risks and political risks. Local instability could undermine investment projects in countries like Pakistan, which is deploying thousands of troops to safeguard China’s investments. Stratfor also points out that the flip side of stronger connections is that they will "provide new routes for the illicit movement of goods and people into China.” Could major Chinese cities emerge as terrorist targets just as New York, Paris, and London have in recent years?

Despite this uncertainty, it is particularly unwise to ignore the “One Belt, One Road” initiative: it just might shape the 21st century as much as the Marshall Plan did the 20th.

 

 

 

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