I was asked to focus on geopolitical developments in Asia, and in particular in China and India. However, when trying to identify events in Asia that affect the Middle East, it is impossible to ignore North Korea, which recently exploded a nuclear bomb. I will begin with a discussion of developments in China and in India and conclude with a discussion regarding North Korea.

CHINA

2006 was a good year for China, and it has equally good prospects for 2007. One of its problems is actually excessive growth, which currently stands at over 10%. In addition, China is trying to manage the appreciation of its currency and its trade imbalance. Currently, China has a large and rapidly growing trade surplus; this is a major issue in the US that provides additional ammunition for critics of the China-US relationship.

Politically, the year was relatively stable. President Hu is fightingu

 to maintain power, which I expect him to do. The country is continuing to prepare for the Olympics, which will require it to put its most moderate face forward.

Diplomatically, in terms of China's ties with the US, the year was also stable. Taiwan, which is a source of tension in these ties, did not figure prominently in the relationship. The US needs China in its confrontation of North Korea—a fact that reflects China's growing regional role. In addition, China's relationship with India improved, which is evident in the high level of trade between the countries. It appears that India will not become a card that the US can use against China.

Militarily, we see continued modernization of the Chinese military, which recently announced that it has obtained satellite capabilities.

The country's growth continues to place intense demand on natural resources and drive up their prices. When considering the growth in India, it is clear that it is a good time for commodities and for the Middle Eastern countries that export them. This is perhaps the greatest impact of the country's growth.

INDIA

India experienced a bad year for agriculture, but economic growth was basically sustained. Still the prime minister has affirmed that conditions are insufficient and demanded that India keep up with China.

Politically, there was a fair measure of stability, as the government has managed to maintain control.

Diplomatically, the US has been embracing India as a strategic ally in non-proliferation efforts. However, this process is unfinished and necessitates an implementing agreement. The key point here is not to assume that this new relationship means that India, a traditional ally of Persia, will automatically side with the US.

KOREAN PENINSULA

North Korea's explosion of a nuclear device was not a surprise. What was unexpected was the lack of change in the situation on the ground. It had been said that North Korea's attainment of nuclear capabilities would bring about a crisis, but the country's trade is actually increasing, the borders are still open; and construction of an industrial zone has continued.

If tough sanctions are to be implemented, only Japan is in the US camp—and this is mostly for historical reasons. We are seeing a breakdown of four versus two, with the US in the inauspicious position of being in the minority.

The US is in a bad place. There seems to be no good military solution, in part because our troops are committed elsewhere, in the war on terror. Furthermore, some of our allies are not with us.

The world is now a more dangerous place. There are three major threats:

1) North Korea will have enough fissile material to sell; it has exported all its other resources, and there is no reason to believe that nuclear resources will be different. This is threat to the whole world, and especially to Israel. Even one sale could result in catastrophe.

2) Japan must be confident in the US's abilities; otherwise, it may become nuclear.

3) The North Korea experience has revealed the failure of effective deterrence. We must assume that Iran has noticed this—and this is the biggest threat to Israel.

What is to be done?

We must prevent the sale of fissile material both by means of threats and through counter-proliferation efforts.

We can hope that North Korea collapses; this, of course, is not a policy.

We can seek a diplomatic solution: this will likely be under the guise of multilateralism but will really be bilateral. We must remember that North Korea has no real incentive to negotiate and that no country that has developed a nuclear device has ever relinquished it.

Question: Paul Bracken, Yale University: If the US is defeated in Iraq, how will that be perceived in East Asia?

Reply: The consequences would be huge. Singapore, for example, is worried about the terrorist threat in Indonesia and other Asian countries.