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Geo-political and social issues faced by Asian countries

EXECUTIVE SUMMARY

This Report starts with the introduction and then the different issues are discussed in detail. Because of the Sino-US tensions there will be a direct impact on the bottom line of many companies and because of the uncertainty in the future leadership of North Korea and its Political Instability many industries in North Korea are affected when compared to military and nuclear plants. The high inflation is responsible for the economic instability but there are other factors which cause the economic instability are volatile bank lending, volatile price of assets, unrest in labor market, volatile levels of growth. Because of these types of instability there will be affect on business. Environmental issues are an underlying—and often neglected—cause for conflicts, disasters, or dislocations.

INTRODUCTION:

The geo-political and social issues faced by Asian countries like

->Tensions in Sino-US relations,

->Uncertainty in the future leadership of North Korea and its political instability,

->Inflation and Economic Instability and

->Energy and Environmental issues and increase in oil and gas price

Have inevitable effect on the business conditions in ASIA. This report contains notes regarding the above mentioned issues and it discusses the effect of these issues on Asia. This report contains how these issues effect on the businesses in Asia.

TENSIONS IN SINO-US RELATIONS:

Sino – US or PRC (People Republic of China) – United States relations are referred to as international relationship between PRC and US (United States of America). First contact between China and America occurred in 1784, during voyage of American trade ship to Empress of China which arrived to Canton. This was the beginning of lucrative Sino-US relation which is also known as Old China Trade.

The main sources of Tensions in Sino – US Relation are:

Debt and Urrency.

Investment and Trade.

Taiwan and Tibet.

Internet Freedom.

DEBT AND URRENCY:

US say that “China is unfairly helping the exporters and it keeps its currency artificially undervalued” while China says that “the World economic recovery can be done by using the stable currency”. It is nothing but a discussion about loud lobbying and issues on exchange rates which will only delay the movement of Yuan. At the same time the Chinese government has concern about the US economic policies and it also fearing value of Chinese currency Yuan can be eroded by the massive debt issuances which make the China to fund the US stimulus.

TRADE AND INVESTMENT:

The US officials worried about the Chinese innovation programs which may create the barriers to the foreign companies. And China also made a complaint against the US regarding the investment barriers on US side and citing resource investments are blocked on the national security grounds.

TAIWAN AND TIBET:

The Tibetan spiritual the Dalai Lama made a visit to US and met the President of US Barack Obama on February and the Chinese Government expressed the strong disapproval Obama for damaging the ties for meeting and saying that it was up to the capital of US that is Washington to repair the relations. And even Taiwan also remained as a sore point.

The Government of China also talked about possibility of sanctions that selling weapons by US to island under 6.4 billion dollars.

INTERNET FREEDOM:

Google company faced many problems in China that the Chinese Government had made a rule that all foreign companies should obey the laws of China to operate in china and which made the Google to shut its Chinese language portal and to began the rerouting the searches to Hong Kong site.

These are the main sources which made the Tensions in Sino-US Relation.

These Tensions in Sino – US Relations may affect the Business:

The Tourism and Luxury goods are the most readily targeted because at the time of Iraq war the French wine sales in US has been decreased by 13% and when there is anti-Japanese protests in April 2005 one of the Japan’s airline company reported that the 1000 Japanese had canceled the flights to the China daily.

There will be effect on sale of products and it may persist for long period of time because of consumer animosity towards the country will be rooted deeply held beliefs.

There will be direct impact on the bottom line of the companies.

UNCERTAINTY IN THE FUTURE LEADERSHIP OF NORTH KOREA AND ITS POLITICAL INSTABILITY:

North Korea is a single – party state which is placed last in the list of 167 countries as most authoritarian regime. Its political system built on the principal of centralization. The Western countries view North Korea as last old-style communist dictatorship but its government has been changed from Marxism-Leninism to self – reliance philosophy. The military system in North Korea has occupied as the centre for North Korea’s political system. Thus the public activities in North Korea mainly focuses on easy guidance of events and places which are related to the military by promoting NDC (National Defense Commission) members in official power. Thus it is called as “War – Torn Economy”. The North Korea had adopted the number of liberal economic laws which were aimed to attract the foreign capital but the North Korea’s system and internal economic regulations were not changed. Thus it shows that the microeconomics and macroeconomics were remained same. The president of North Korea Kim Dae-Jung also requested the countries US and Japan for economic relations with the North Korea to change it and make its economy open.

North Korea joined the financial institutions like IMF (International Monetary Fund), Asian Development Bank and World Bank, North Korea also joined relations like Japan- North Korea and US-North Korea to improve its economy.

Korea divided into two parts as North Korea and South Korea during the war the Peoples Republic of China sent its troops to North Korea to fight against the South Korea but at the same time United States – South Korea force was driven out of North which shows that it may affect the relationship between People’s Republic of China and United States that is Sino – US Relations. North Korea faced the inflation problem in 2002 which faced a high level of inflation.

On October 9th 2006 the North Korean nuclear crisis climaxed with test of nuclear device which influenced views of specialists of China. Thus the Chinese leader tried to dissuade the nuclear test by North Korea publicly and privately thus it has became a debate center on is it necessary to set aside the China’s loyalty to

North Korea regime to maintain good China – US Relation and to achieve objectives from China to develop its economy.

Because of uncertainty in the future leadership of North Korea and its political instability may affect the business:

It may lead to disturbance in China – US Relationship.

North Korea’s center of political system is military which may be the threat to the Asian Countries.

The foreign companies may fear to invest their financial institutions in North Korea which may to less economic development.

INFLATION AND ECONOMIC INSTABILITY:

ECONOMIC INSTABILITY:

Economic instability is that excess fluctuation in economy. Economy is that effective usage of resources which are available and instability is that quality or condition is being unstable. Economic instability can be caused by some factors like labor market unrest, increase in the prices, volatile growth of levels and bank lending’s all this affect the economy and may lead to instability. The inflation is major factor which is responsible for economic instability. There are many other factors which are responsible for economic instability they are:

Confidence.

Banking Systems.

Labor market unrest.

Asset Bubbles.

Inflation.

Booms and Busts.

All these are the factors which are responsible for economic instability.

Causes of Economic Instability will affect the fluctuation in the aggregate demand:

Change in the price of houses

For example consider the situation in UK where there is fall in the price of houses by 15% in 1992 which made the country to fall in recession and there is a negative growth of 2%.

There will be fluctuation in the stock market because if there is big fall in the stock market may lead to fall in confidence level of consumers and which may lead to recession.

For example consider stock market crash in the year 1987 which did not cause a downturn of the economy.

There will be change in the interest rates also. Interest rate is a tool which is used to control the inflation. These can also have impact on the expenditure of consumers.

For Example in UK many of the home owners mortgaged their homes at variable prices for that there is a small change in the interest rate which affected the disposable income.

There is one supply side factor which can cause economic instability that is rise in price of oil. If there is rise in the price of oil it can cause the economic instability.

INFLATION:

Inflation is that reduction in purchasing power of currency or general increase in the price of goods and services. Unexpected inflation can cause harm to the security prices because it primarily forces increase in the interest rates. There are levels of inflation they are:

Inflation

Moderate inflation

Hyper inflation

Deflation.

Inflation is of two types they are:

Price Inflation.

Monetary Inflation.

PRICE INFLATION:

Price inflation is that there will be rise in the prices of goods and services for a period of time.

MONETARY INFLATION:

Monetary inflation is that there will be rise in the quantity of money in the economy.

Inflation is caused by the four factors they are:

When the supply of money go up.

When the supply of other goods go down.

When the value of money goes down.

When the demand for the other goods go up.

The inflation can affect the business:

Many companies may go out of their business if there is inflation because of losses they had incurred.

Distortion for the relative prices that is the price of goods will go higher and mainly the price of commodities will go higher.

There will be rise in the price of imports because if the value of money is reduced then it may leads to lowering the purchasing power in international market.

The companies should take inflation into the consideration while calculating their profits because if there is inflation then it may be tough task to know whether the companies are making profits or losses.

There will be increase in the risks and there will be higher uncertainties.

There will be effect in the income.

There will be instability in the price of goods.

Environmental problems of Asia:

1) Most of the environmental problems in Asia are caused by increasing usage of transportation, manufacturing activities and high concentration of humans in urban cities. The government policies encouraged people to migrate into urban cities. It is expected that urban population in Asia will count 2.3 billion in 2020.

2) The food security in Asia is threatened by deforestation and desertification. The loss of Agriculture and forests land is mainly due to exploitation for increasing the bottom-line of companies. Indonesia's province which failed miserably to manage smog threatens the productivity and health of its own people as well as neighboring Singapore and Malaysia.

3) Waterwith increasing population the demand for water increases so the water supplies will be polluted and also with increasing industrial activities water pollution also increases projecting to 2025, water shortage will affect China,India,Cambodia,Philippines,Thailand,Vietnam,North and South Korea.

4) The other environmental problems that affect Asia are overfishing, global warming, air pollution.

The environmental issues affect the business:

->with global warming, air pollution etc many businesses get affected.

->Companies will start taking the CSR activities very seriously.

Energy, increasing oil and gas prices in Asia:

->With growing economic the energy demand also increases often the energy production does not catch up with soaring demand and net imports are increasing.

->This trend is evidently seen in oil.

-> To bridge the gap between supply and demand Asian countries increased oil imports from Middle Eastern countries.

Effects on Business:

->Increased oil imports increases oil prices and this leads to currency fluctuations.

->Many MNC’s profitability gets affected by the currency fluctuations.

->Increase in gas and oil prices primarily result of the insufficient government intervention, corporate greed and poor planning.

->As there is increase in price of oil and gas the small and medium companies may not able to afford and it may leads to stop production and shut down their companies.

->There will be fall in the business.

->There will be increase in inflation

->The monetary policies will get tightened

->Interest rates will increase.

Conclusion:

According to my research it shows that if there is change in social issues and geopolitical issues that will affect the business directly or indirectly. Consider the social issue Inflation and Economic Instability in which if there is inflation the value of money get reduced and price of goods increases, interest rates increases, purchasing power become lower in international market and loss to business. Consider another social issue increase in oil and gas prices which may lead to increase in inflation, increase in interest rate, monetary policies get tightened and there will be fall in business. Consider another social issue Tensions in Sino – US Relation which affect the business in many ways. Thus all the social issues are directly or indirectly affecting the business.

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