More bad news from China’s economy. On Wednesday, Caixin/Markit released its report on China’s Purchasing Managers’ Index, a measure of factory activity among small and medium-sized companies. For the first time in 19 months, the index fell below 50 to 49.7 in December, a sign that factory activity in the country contracted for the month. This came two days after China released its official PMI, which also fell below 50 to 49.4. (The government’s PMI focuses on larger companies.) Though the trade war between the U.S. and China has lowered factory orders, Caixin notes that reduced domestic demand also contributed to the decline – unsurprising, considering Beijing is extending much less credit than it used to. The data are significant in and of themselves, but given the precariousness of Beijing’s political balancing act and China’s regional security more generally, they are especially foreboding. The more intense China’s domestic economic challenges are, the more tense its regional relations will be.

U.S.-South Korean military cooperation. Talks between Seoul and Washington are already underway, even though official negotiations won’t begin until March. Among the U.S. government’s priorities is to change the life span of whatever agreement is signed from five years to one year, according to unnamed sources in a report from The Hankyoreh, a South Korean newspaper. Washington is also asking Seoul to cover U.S. deployment of aircraft carriers and bombers, something that would cost some $1.6 billion, roughly double its current contributions. This type of back-and-forth is pretty standard in any military partnership. But with the U.S. and South Korea still largely at odds over how to manage the threat of North Korea, such points of contention become a little more concerning. Seoul is, after all, preparing for a time when it will have to stand on its own.

What the year holds for Iran and Israel. The Israel Defense Forces’ intelligence chief has said Iran is using Iraq as a base for operations against Israel. Somewhat paradoxically, he also said the chances of conflict with Hezbollah and Hamas are low, for now. Perhaps it’s worth taking his statement at face value. Another explanation could be that Israel is trying to lull Iran into complacency. It’s not as if Israel all of a sudden believes Iran is not a threat to its security. The IDF just created a new battalion to monitor Israel’s border with Lebanon, and Iranian President Hassan Rouhani recently told a leader of Islamic Jihad, a Palestinian militant group, that “resistance and fighting” are the only way forward for Palestine. We still believe Hezbollah and Israel will come to blows at some point this year.

Intervening in Italian banks. Regulators from the European Central Bank have installed “temporary administrators” at the floundering Italian bank Banca Carige after a majority of its board members, having failed to raise 400 million euros in emergency capital last month, resigned. The ECB had given Banca Carige until the end of last year to either raise the capital it needed to solve its liquidity issues or face an acquirer. With $24 billion in assets, Banca Carige is one of Italy’s largest banks. Even so, this isn’t the be-all and end-all of the EU-Italian standoff. It does go to show, however, that the EU will need to keep actively engaging with Italy and its vast amounts of nonperforming loans.

Honorable Mentions

  • Eighteen politicians from Iran’s Isfahan province have resigned in protest of water distribution practices.
  • Russian crude oil production reached a new high in 2018, hitting an average of 11.16 million barrels per day throughout the year. Brent crude prices continue to fall (to about $53 per barrel this morning).
  • Total births in China declined from 17 million in 2017 to 15 million in 2018 – the lowest number of births in the country since 2000, despite Beijing’s relaxing the one-child policy.
  • The British defense secretary has claimed that the United Kingdom is considering establishing military bases in the Caribbean and the Far East.