The document summarizes the top 5 political risks in Asia according to a political risk analysis firm. The risks are: 1) escalating territorial disputes over islands in the South China Sea increasing tensions; 2) increasing risk of social unrest and crackdown in China due to inequality and economic issues; 3) risk of miscalculation by isolated North Korean regime still propped up by China; 4) potential for instability if Japan's decline reduces its role in regional security; and 5) risk of turmoil from complacency about issues like corruption, poverty and unemployment fueling social tensions.

1. Asia heats up !!
Top 5 political risks in the world’s most dynamic region!
December 2012! www.politicalmonitor.com.au!

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This presentation provides a brief overview of the top 5 political risks confronting the Asia
region. It presents summary views and should be taken as such.!
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The information is taken in part from Political Monitor’s series of Country Risk reports and
analysis.!
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More information is available @ www.politicalmonitor.com.au !
Top 5 political risks for Asia! December 2012!

3. 1. !FIGHTING OVER ROCKS!
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• Territorial disputes over potentially resource rich islands in the South China Sea have
escalated tensions in the region. Military engagement would shake regional security
and global markets!
• Parties to the disputes include China, Japan, South Korea, Vietnam and the
Philippines. In each country nationalist pressure groups are hardening the negotiating
position of respective governments!
• A regional dispute resolution mechanism is required to ensure miscalculation does not
escalate into a ‘hot’ dispute.!
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Top 5 political risks for Asia! December 2012!

4. 2. !SOCIAL UNREST & CRACKDOWN IN CHINA!
• The risk of social unrest in the world’s second largest economy is increasing. The
Government can be expected to respond forcefully to any emerging social disquiet
that threatens political stability. Such an event would affect global markets and
regional security!
• In 2010 there were 180,000 reported illegal protests – up 50% on two years prior
illustrating rising community disquiet about inequality and corruption!
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• The softening economic environment will make it more difficult for the Government to
paper over community discontent. Structural reforms that re-balance the economy
and improve political cohesion between elites and the populace are necessary to
avoid political and social turmoil.!
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! Top 5 political risks for Asia! December 2012!

5. 3. !NORTH KOREA VERSUS REALITY!
• North Korea is a regime that lives in a bubble and is prone to believing its own
propaganda. This increases its risk of miscalculation about how far it can push its
neighbours and how strong it really is!
• It is obvious to everyone that North Korea would be best served by following the path
of Burma. The economy is a shambles and the people repressed. All that keeps the
regime alive is China and the threat of nuclear weapons on the Korean peninsula!
• Nonetheless, the North Korean regime is likely to remain in place in the short to
medium term. A continuation of existing policies weighs on the regional security
outlook.!
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! Top 5 political risks for Asia! December 2012!

6. 4. !JAPAN'S DECLINE!
• While economically weakened Japan nonetheless remains central to the Western
alliance in Asia and the US pivot. A failure by Japan to remain central to East Asian
security would create a power vacuum and inherent instability!
• Japan’s window to reverse its trajectory towards irrelevance is closing. It must
address government debt levels if for no other reason than its forecast military
expenditures are dependent on a sustainable budgetary position!
• Japan must also seek to resolve its territorial disputes, particularly with other members
of the US alliance system, to minimise the risk of miscalculation and avoid diverting
resources and time to what are second order security issues.!
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Top 5 political risks for Asia! December 2012!

7. 5. COMPLACENCY, CORRUPTION & POVERTY!
• With strong growth relative to the rest of the world and a rising middle class, hungrily
eyed by global investors, it would be easy for Asian regimes to proceed on the basis
that all is well!
• However, Asia is a region beset by inequality and rising social tensions based upon
ethnic and religious rivalries and fueled by government corruption. High levels of
youth unemployment in a number of countries add to the capacity for turmoil!
• All of these factors featured in the Arab spring and are the basis for social and political
upheaval. Asian regimes must prioritise reducing economic and political inequalities.!
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Top 5 political risks for Asia! December 2012!

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Detailed analysis on these and other political risks can be found @
www.politicalmonitor.com.au!
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About Political Monitor!
Political Monitor is a political risk research and advisory firm. Our analysis provides
insight into the implications of political risk for commercial valuations, asset selection,
investment decisions, strategic planning and operational decisions. !
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Top 5 political risks for Asia! December 2012!

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Top 5 political risks for Asia! December 2012!