Vice Marshal Choe Ryong-hae, vice chairman of North Korea’s Central Military Commission, arrives in Beijing, China, May 22 (KCNA)

Chinese media quoted one of North Korea’s top military officials on Thursday as saying that the country was “willing to accept the suggestion of the Chinese side and launch dialogue with all relevant parties,” possibly an indication that the regime is Pyongyang in prepared to restart talks about its nuclear program after months of tension that saw the North conduct another weapons test and suspend a military hotline with the South.

Vice Marshal Choe Ryong-hae, who is one of the highest ranking members of the North Korean ruling party’s Politburo after leader Kim Jong-un, made the statement after meeting with a senior Chinese Communist Party official in Beijing, the first of its kind in six months’ time.

North Korea pulled out of negotiations about its nuclear program in 2009 when it also expelled foreign inspects after the United Nations and the United States had criticized a failed missile launch.

Relations between China and North Korea, nominally allies, were soured by the latter’s bellicose behavior in recent months. While China normally shields the smaller communist country from international sanctions, it said it was “strongly dissatisfied” by a nuclear test in February. Earlier this month, it suspended trade with the North’s main foreign exchange bank and closed its account in China.

United Nations sanctions have repeatedly condemned North Korea for developing a nuclear weapon capability since it withdrew from the Nonproliferation Treaty in 2003. It has tested at least three weapons since 2006 and numerous ballistic missiles, the most sophisticated of which can probably reach Alaska but not the mainland United States.

The Chinese often resisted sanctions because the North Korean regime provides a buffer between them and South Korea where nearly thirty thousand American troops are permanently stationed. Its recent provocations, however, rather than keeping the Americans at bay, prompted the United States to expand their missile defenses in Alaska and Guam and deploy more military strike assets to the region, including two B-2 stealth bombers which overflew the peninsula in March in a show of force. Those actions might have heightened Chinese fears of encirclement which hardliners in Beijing suspect is the aim of the United States’ strategic “pivot” to East Asia.

Choe, despite having no formal role in North Korean economic policy, was also shown around the Beijing Economic and Technological Development Area where electronic, pharmaceutical and information technology companies are active. The intended message may have been that North Korea ought to follow the Chinese development model.

China has gradually relaxed state controls since the 1980s and prospered since. North Korea announced some agricultural reforms late last year but has altogether refrained from liberalizing its economy.

General Martin E. Dempsey, chairman of the Joint Chiefs of Staff, speaks with Republican senator Lindsey Graham of South Carolina in Washington DC, February 7 (Department of Defense/Chad J. McNeeley)

With multilateral negotiations over Iran’s nuclear program once again at a standstill, the United States Congress has launched a renewed push to target Iranian financial institutions and cut their access to international markets.

The House of Representatives and Senate are working on own separate bills that would tighten the economic screws on Tehran for its nuclear noncompliance, a campaign that has the potential to further complicate the Obama Administration’s negotiating strategy.

On May Wednesday, the House Committee on Foreign Affairs proposed one of the toughest pieces of legislation to date on Iran’s nuclear program. The bill, if enacted, would target any foreign bank, company or individual that knowingly conducts commercial trade with an Iranian institution that is under sanctions. Countries that currently import Iranian crude oil will be mandated to decrease the amount they purchase over the next year. And the legislation would put additional sanctions on Iran’s shipping industry in an attempt to obstruct the country’s ability to ship goods.

In other words, the House proposal would deny much of Iran’s economy access to markets, creating a small trade embargo.

The Senate version would make it far more difficult for Iran to acquire euros from overseas banks, the currency it has used to stabilize its economy as oil exports have dwindled in the last two years. Any foreign bank that conducts a transaction with the Central Bank of Iran in euros would be banned from participating in the American market. The aim is too limit the amount of euros that Iran can accumulate in its foreign exchange reserves while making it incredibly difficult for the Iranian Government to access its overseas accounts.

Also on Wednesday, the Senate unanimously adopted legislation put forward by South Carolina Republican Lindsey Graham that urges President Barack Obama to enforce all economic sanctions on Iran while committing the United States to support Israel in the event it chooses to strike Tehran’s nuclear program in self defense.

While continuing to weaken Iran’s economic health is undoubtedly the main objective of the bills, Congress may also have something else in mind. By passing legislation with a bipartisan majority, the sanctions would limit President Obama’s diplomatic maneuverability.

Unconditional and patient diplomacy with Iran over the nuclear issue has never been a particularly popular policy in Congress with some members of the president’s own party often questioning whether the Iranians are truly interested in a negotiated outcome. Pushing sanctions bills against Iran has also been a reliable way for congressmen and senators to attract media attention and elevate their profiles. While the two parties are almost incapable of finding compromise on any other issue, levying more pressure on Iran is about the only thing Democrats and Republicans can agree to these days.

Secretary of State John Kerry pleaded with lawmakers earlier this year to hold off on more Iran sanctions, saying that the administration’s diplomatic strategy needed to run its course before more punitive measures were introduced. His words do not appear to have resonated with the vast majority of legislators.

As far as the administration and its allies are concerned, diplomacy is the one option that can permanently end Iran’s nuclear weapons ambitions. Hundreds of members of the House and the Senate believe that Iran will not budge unless it recognizes that its present course will only aggravate its people’s economic suffering and make a preemptive military strike more likely in the months ahead.

The Piazza del Campo in Siena, Italy, March 13, 2005 (Phillip Capper)

Italy’s economy minister announced plans on Thursday to cut housing and labor taxes before suggesting that Enrico Letta’s new centrist government might not have the time to carry out these plans.

Fabrizio Saccomanni, who took office late last month when Letta formed a government that is backed by the country’s largest left and right wing parties, told a news conference in Rome that he intends to fund tax relief by cutting spending and clamping down on tax evasion. “This is the program,” he said. “We’ll see how long we have to carry it out.”

While the parties that support Letta’s administration command majorities between them in both chambers of parliament, the coalition is seen is fractious. Former prime minister Silvio Berlusconi’s conservatives insist on the repeal of an unpopular housing tax although they haven’t made clear where they would cut to cover the €8 billion hole it would blow in this year’s budget.

Letta’s own social democrats would like to water down labor market reforms that were enacted by Mario Monti’s previous government, even if they have made it only slightly easier for firms to hire and fire workers.

Italy’s economy, the third largest in the eurozone, contracted 2.4 percent through last year when unemployment rose to over 11 percent. Largely due to tax increases and pension reforms, the deficit fell to 3 percent of gross domestic product, in line with European fiscal treaty, but Italy’s public debt, equivalent to nearly 130 percent of annual economic output, is still among the highest in the developed world.

Average hourly labor costs in Italy are close to the eurozone average but have continued to rise during the crisis, unlike was the case in Greece, Ireland and Portugal, while Italian workers tend to be less productive than their northern European counterparts.

Monti proposed to open up protected professions and liberalize the labor market altogether but couldn’t get a coalition of the same parties that now support Letta to embrace his plans.

Thousands more pharmacies were supposed to be added but union opposition forced the government into retreat. Efforts to lift professional restrictions on attorneys were halfhearted. Minimum tariffs imposed under Berlusconi’s administration were abolished but in order to compensate lawyers, a maximum was set on the number that can be employed in the industry, making it even harder for law graduates to start a business.

Former Republican governor Jon Huntsman of Utah is interviewed by Juan Williams at the University of Chicago, March 7 (University of Chicago Institute of Politics)

Former Utah governor Jon Huntsman is forming a political action committee to help elect moderate Republicans in the United States and giving himself a platform to influence the party’s direction ahead of the next presidential election.

Huntsman, also a former China ambassador, ran unsuccessfully for the Republicans’ presidential nomination in 2011 and has since repeatedly cautioned conservatives that they risk alienating the majority of voters whose views increasingly favor Democrats.

“The very survival of the party is based on our ability to really begin to define the real issues that we confront and to begin a dialogue of problem solving around them,” he told Politico.

“Problem solving,” Huntsman insists, requires compromising with President Barack Obama and his members in the Senate which Republicans, who control the lower chamber of Congress, seem in no mood to do. Conservative lawmakers who have joined forces with Democrats to devise bipartisan solutions to gun violence, health care and immigration have faced primary challenges from ideological purists—who usually won.

Even if he was economically more right wing than the other candidates in the last presidential primary elections, including the winner, Mitt Romney, Huntsman positioned himself as a centrist by supporting civil unions for gay couples, citizenship for children who were brought into the country illegally by their parents and warning against denying climate change. “The minute that the Republican Party becomes the anti-science party, we have a huge problem,” he said in a television interview.

In New Hampshire’s primary, Huntsman appealed to moderate and young voters and placed third but neo- and social conservatives still mistrusted his noninterventionist foreign policy and sometimes liberal social views. He bowed out before the South Carolina primary in early 2012.

Huntsman’s economic policies—he cut regulations and taxes while governor of Utah and pushed vouchers to give children from poor families the opportunity to study at private institutions—is perfectly in sync with contemporary Republican rhetoric which Politico pointed out last year “is dismissive of any positive role for government that makes the ‘compassionate conservative’ ideas of George W. Bush seem like a very distant echo.”

His cultural liberalism, on the other hand, if acceptable to libertarian voters who are also typically younger, is anathema to a religious right that has set Republican social policy for a generation.

Whether Huntsman can overcome right wing skepticism and mount a successful campaign for the 2016 election is doubtful. He told Politico that he isn’t sure if he will try. “For this year and next year, it will be more about talking about the issues that really matter, presenting them to people who are interested in hearing about them and kind of seeing where they go.” Which, in itself, could be a harbinger for another run.

France’s Laurent Fabius enters questions from reporters before entering a meeting of European foreign ministers in Brussels, January 31 (The Council of the European Union)

European foreign ministers are likely to agree to relax the conditions of their Syrian arms embargo when they meet in Brussels on Monday to allow France and the United Kingdom to send weapons to rebels fighting the regime of President Bashar Assad.

France and the United Kingdom have been the most vocal in advocating a change in the embargo in order to increase their support for Syria’s opposition.

Germany and other northern European countries fear that sending weapons would aggravate the situation. “Delivering weapons always involves the danger of an arms race and slipping into a proxy war that could push the whole region into a broader conflict,” German foreign minister Guido Westerwelle told Der Tagesspiegel newspaper in late March.

His Dutch counterpart Frans Timmermans has issued similar warnings and pointed out that the opposition movement, largely one of Sunni Muslims who comprise the majority of Syria’s population, is increasingly radicalized.

Dutch security services reported in March that dozens of Muslims from the country had gone to Syria to join what they considered a holy war. It prompted the government in The Hague to raise its terror threat level to “substantial.”

Speaking in Jordan on Wednesday, American secretary of state John Kerry, however, pledged that Western powers would expand their support for opposition forces to help them “fight for the freedom of their country” if Assad did not agree to peace talks.

Russia and the United States hope to convene a conference in Geneva next month where representatives of the regime and opposition are supposed to find a political solution to a civil war that had dragged on for more than two years.

European countries and the United States have so far limited themselves to providing “nonlethal” aid, including communication and sanitation systems as well as body armor. By raising the threat of expanding support to include weapons, they might hope to coax Assad in taking the peace talks seriously.

If European foreign ministers do not agree to extend the embargo next week, it automatically expires. Which is probably why Timmermans, who otherwise resists easing the sanctions, told parliament on Tuesday that some changes were inevitable, “to help moderate forces protect the population from attacks by President Assad’s troops.”

Although he is backed by Austria, the Czech Republic, Finland and Sweden, which all oppose delivering arms to Syria, the Dutchman recognized that if he perseveres, the British and France may pull out of the embargo altogether. He therefore seeks a compromise that will preserve European countries’ unity while limiting the support they allow themselves to provide to Syrian opposition fighters.

Algerian president Abdelaziz Bouteflika is welcomed by French foreign minister Bernard Kouchner in Nice, May 31, 2010 (Ministère des Affaires étrangères/Frédéric de La Mure)

Algeria’s prime minister admitted in remarks that were reported on Tuesday that President Abdelaziz Bouteflika was seriously ill and convalescing in France, raising the prospect of a generational shift in the North African country’s secretive leadership.

Bouteflika, who has been in office since 1999 and presided over the end of an atrocious civil war in 2002, might be its last leader to have experienced Algeria’s struggle for independence from France.

Presidential elections, still scheduled for 2014, could be moved up if Bouteflika is permanently incapacitated or dies, even if elections in Algeria are a largely ceremonial affair. Bouteflika supposedly won more than 90 percent support in the last vote in 2009.

Islamist victories in the 1991 parliamentary elections prompted the army to cancel the vote, triggering Algeria’s civil war. Too many Algerians probably want to avoid a repeat of the 1990s, when tens of thousands died in the conflagration, to demand another experiment in democracy.

Algeria has largely escaped the sort of political unrest that toppled dictatorships across the Arab world in 2010 and 2011 as well as the resurgence of Islamist militancy that it so bloodily suppressed over a decade ago and recently plunged neighboring Libya and Mali into civil wars.

Generous welfare spending and tax cuts, financed by oil and natural gas exports, allow Algeria to alleviate poverty and unemployment, two of the factors that contributed to the political crises in its neighborhood. Even if Algerians share many of their fellow Arabs’ grievances, including a desire for better economic opportunities and improved political accountability, uncertainties about the regime’s survival stem mainly from an old guard handing power to a generation that did not fight in the independence war.

“Algeria is coming to a precipice,” wrote Algerian blogger The Moor Next Door earlier this month: “a whole political generation is on its way out and it is not clear how one generation will transfer power and legitimacy to the next.”

While Bouteflika’s departure might not immediately “decapitate the Algerian system as a whole,” which The Moor Next Door describes as “an organic set of highlight networked relationships that are reliant on one another even in competition and conflict,” it could well be the beginning of the end for it.

The regime has so far been able to buy off and incorporate dissenters. Future leaders might not have that luxury.

An almost instinctively statist economic policy means price ceilings and tariffs are unlikely to be abolished, especially when liberalization would expose the Algerian population to fluctuations in international fuel and food prices—a third factor in “Arab spring” uprisings. Yet hydrocarbon revenues are slowly decreasing. The government can hardly afford to stave off reforms indefinitely which could in turn raise people’s expectations of political change as well.

Israeli justice minister Tzipi Livni attends a meeting in Kiryat Gat, February 25, 2011 (Flickr/Tzipi Livni/Itzik Edri)

Despite support from Prime Minister Benjamin Netanyahu’s two centrist coalition parties for a peace deal, Israel is unlikely to reach such an accord with the Palestinians under his government.

Liberal justice minister Tzipi Livni, a former foreign minister, clashed with lawmakers from the nationalist Jewish Home party on Tuesday when she argued that a two-state solution is in Israel’s own interest. “Two states for two peoples is not the government’s official position,” insisted Orit Struck, a Jewish Home member. “This is perhaps Netanyahu’s position and your position but it has not been accepted as the government’s position,” something Livni admitted.

Ronen Hoffman, a lawmaker for Yair Lapid’s centrist Yesh Atid, which placed just after Netanyahu’s conservatives in January’s election, wondered, “How is it possible to expect the Palestinians to enter negotiations when part of our government opposes a Palestinian state?”

Livni called for a freeze in Jewish settlement construction in West Bank territory that is also claimed by the Palestinians, a policy the prime minister previously supported but is strongly resisted by right wingers.

A day earlier, Lapid had gone further and suggested some settlements should be dismantled if Israel was to reach a final peace agreement with the Palestinians. “We will have to remove tens of thousands, not just from their homes but from their dreams,” he told a business conference in Tel Aviv. He added though, “The settlement blocs will remain in Israel.”

Some 80 percent of 340,000 Jewish settlers in the West Bank live in large clusters near the capital Jerusalem or the internationally recognized border.

Livni’s and Lapid’s parties got 20 percent support in January’s election, almost as much as Jewish Home and the orthodox Shas that supported Netanyahu’s previous governments. The latter adamantly oppose territorial concessions to the Palestinians as part of a peace agreement.

It is unlikely that the two centrists that will be able to force Netanyahu into revising his settler policy. The premier can ill afford politically to defy right wing voters, many of whom defected to Jewish Home in the last election.

Lapid, moreover, even if he commands the largest bloc after Netanyahu’s in parliament, has more pressing worries. His voters are mainly secular and middle class who switched to Yesh Atid because they felt Netanyahu’s economic policies left them out in the cold. Yet as finance minister, he proposes tax increases and spending cuts that hit middle incomes hardest. He therefore lacks the popular support that might otherwise have allowed him to demand changes in the government’s foreign policy.

The Labor opposition was quick to capitalize on the coalition’s internal division on Tuesday when one lawmaker asked Livni whether she was “a lone wolf in this cabinet or a fig leaf for the government’s true policy on the Palestinian issue?” At least for now, the former seems the more accurate description.

Pakistani politician Imran Khan watches a rally in Karachi, December 25, 2011 (Tehreek-e-Insaf)

The political tsunami that Pakistan’s Imran Khan promised, and was so sure of achieving, never came. His party, Tehreek-e-Insaf, fell almost a hundred seats short of Nawaz Sharif’s conservative Muslim League which is now set to form a government.

The former cricketer’s meteoric rise in the past few years was perhaps the most notable feature of this month’s election. The massive turnout at his rallies in politically significant cities including Karachi and Lahore and the apparent appeal of his proclaimed “new Pakistan” led many to believe that he would be able to challenge the dominance of the Pakistan People’s Party and Sharif’s Muslim League.

Two things seemed to work in Khan’s favor: his personal reputation and a general anti-incumbency sentiment in Pakistan. The latter was restricted not only to the People’s Party government but extended to the entire political system which included Sharif, a former premier. Khan exploited it well by focusing on issues that were bound to find a receptive audience. In particular, he launched a strong critique against corruption, the perks and privileges enjoyed by government officials, especially the unofficial exemption from paying taxes, and Pakistan’s alliance with the United States and the resultant drone strikes on its soil.

The fact that Khan had little of a political career also benefited him as he was viewed as an outsider. His lack of ties with Pakistan’s political elite set him apart from the rest of the field. His successful management of a cancer hospital in Lahore, in a country where much of the health sector is in shambles, was applauded even by his critics.

However, as the initial euphoria about him waned, flaws became apparent. While he rightly identified Pakistan’s problems, he offered little in terms of comprehensive solutions, his proposals being deemed “idealistic to the extent of being simplistic.”

Khan proposed to solve the country’s revenue collection problem by setting a better example which supposedly would have inspired Pakistanis to pay more taxes. He seemed to blame the United States entirely for fueling Islamic insurgency by targeting suspected terrorists with unmanned aerial vehicles while refusing to speak out against the Taliban, alienating urban voters who were otherwise his main supporters.

Khan’s talk of a “new Pakistan” and promises of “change” were further tainted by his party’s inclusion of defectors as well as stalwarts of the old political system. Others resigned from the party, claiming that it had strayed from its original ideology.

In the absence of a convincing platform, Khan’s own reputation and widespread anti-establishment sentiment could only have taken him so far. The Muslim League and Pakistan People’s Party, for all their flaws, still have strong foundations in their respective strongholds, evidenced by their performance in Punjab and Sindh, respectively.

All is not lost for Imran Khan. He may not have succeeded in “sweeping the elections” but his performance was a significant improvement from his previous outings. From having secured only one seat in 2002, his party emerged with a plurality in Khyber Pakhtunkhwa where dissatisfaction with American drone strike is highest. Khan will be able to form the provincial government there.

Nationally, Khan’s may yet morph into a credible alternative to the major parties. It won’t have to compromise on its positions in a coalition government, rather develop its platform more comprehensively and prepare to pose a more formidable challenge in the next election.

The Financial District in New York City, New York, November 10, 2011 (Steve Minor)

Fear is rising that the American central bank’s expansionary monetary policy might be inflating another bubble. Having flooded financial markets with some $2 trillion in easy money since the summer of 2007, the Federal Reserve has hampered a necessary reallocation of resources that would have benefited the American economy as a whole in favor of propping up the baking industry.

Late last year, the central bank announced that it would continue to keep interest rates near zero and pump money into the economy as long as it takes for unemployment to come down to 6.5 percent. It stood at 7.6 percent in March, having slowly dropped from a 10 percent high since October 2009.

Yet five years into the Fed’s monetary policy experiment, millions of Americans remain out of work. ProRepublica‘s Jesse Eisinger pointed out in The New York Times last month that in March, “a smaller percentage of working age people were actually working than at any other time since 1979.”

Rather than fuel a sustainable economy recovery, he argued, “the Fed has kindled speculation. Investors are desperate for yield and are paying up for riskier assets. In areas like real estate, structured finance and equities, the markets are ahead of the fundamentals.”

Quartz‘s Simone Foxman similarly reported on Monday that even the central bank itself is starting to worry about asset bubbles. Federal Reserve chairman Ben Bernanke said last week that he was “watching particularly closely for instances of ‘reaching for yield’ and other forms of excessive risk taking which may affect asset prices and their relationships with fundamentals.”

The problem, according to Foxman, is that it’s “hard to know what ‘excessive risk taking’ would look like these days because the central banks’ involvement in the markets is distorting the usual ways risk is measured.”

Detlev Schlichter, a former investment manager and author of Paper Money Collapse (2011), therefore likened the Fed’s policy last year to a giant placebo. “It is not true medication as it evidently does not address the economy’s fundamental ills but a tool for nationwide mass hypnosis,” he wrote at his blog. It does so by driving down interest rates and cajoling investors into economic activity.

Low interest rates should signal “the availability of a large pool of voluntary savings that desires to be invested and to be translated into productive assets,” Schlichter explained. By printing new money and keeping interest rates near zero, the Federal Reserve hopes to encourage such investment in the absence of savings.

In doing so, it has certainly “sabotaged the redirection of scarce capital from the bubble industries that had benefited from the credit boom toward new, productive and more sustainable employment in other sectors” and might even be setting the stage for another crisis.

Prime Ministers Li Keqiang of China and Manmohan Singh of India speak at the presidential palace in New Delhi, May 20 (MEA/Hansra)

Quite possibly the most senseless foreign policy position China has taken over the years has been its stance toward Japan. With diplomacy concentrating on World War II issues that most of the world has now moved on from, sovereignty disputes over close to worthless islands and a rise of Chinese nationalism fueled by state propaganda, China has succeeded in alienating what remains one of the world’s largest economic powers as well as a major historic foreign investor in China and a close regional neighbor.

While Japanese investment will remain in China, the fallout from the Chinese government fueled drop off in Japanese sales to China has made the Japanese business community now feel unwelcome in the country. Consequently, future Japanese investment is looking for more sustainable, and friendly, investment relations across the rest of Asia.

A look at the emerging markets across Asia sees Japanese motorbikes and cars on the streets of Hanoi, Ho Chi Minh City, Rangoon, Jakarta, Delhi and Sri Lanka. Successful joint ventures across the region have made Japanese auto companies a dominant force throughout Asia and beyond. Even in the United States and Europe, some of the most popular brands include Toyota, Honda, Nissan, Suzuki and Mazda.

China, meanwhile, is now stuck trying to foist unwanted Volvo sedans on a domestic population that does not want to buy them and is not seeing much overseas demand for its domestic auto brands. No one wants an FAW truck except for a handful of nations in Africa and Latin America. Losing the support of the Japanese investment community was the wrong diplomatic step to take and China will pay in terms of lost opportunities to partner with Japanese manufacturers globally for this misguided approach for years to come.

In short, the lesson is this: you cannot continually beat up on one of your largest trading partners and one of the world’s largest economies without something giving way at some point. It has, and Japan, at least within the business investment community, now regards China as “unfriendly.”

This is relevant to Chinese premier Li Keqiang’s visit to India on Monday, as China three weeks ago invaded parts of Ladakh—Indian held territory in the far west near the border with Pakistan.

A three week standoff over arguments concerning the “Line of Control” ended with the Chinese leaving; a curious incident that suggests all may not be entirely satisfactory in relations between China’s military and its diplomatic and commercial ministries. It has gone unnoticed by many whose traditional view of India is that it remains poverty stricken and poor. In actuality, the country has recently overtaken Germany and Japan in terms of gross domestic product in purchasing power parity terms and sits below only the United States, the European Union and China (according to the CIA World Factbook).

China, for once, cannot afford to upset both Japan and India. Li’s visit, then, takes on some significance for Sino-Indian bilateral relations. It also comes at an interesting time in terms of their population demographics.

China is losing the worker demographic dividend—an advantage it has held over India for the past two decades. Twenty years ago, the average age of a Chinese worker was twenty-three. Now that age is thirty-seven and a thirty-seven year old worker requires assets and they expect the Chinese Government to help them acquire these.

The difference between a twenty-three year old worker and a thirty-seven year old worker is that the latter is likely married, has a child, two sets of parents, a mortgage, a car and probably wants to take his family on overseas vacations. Couple that with the child’s education—possibly with the hope of an overseas university degree—plus planning for retirement and aging inlaws and the implications become clear.

Chinese consumers are becoming more demanding at an accelerating rate as well; China is one of the world’s fastest aging nations with some 250 million—nearly 20 percent of the population—reaching retirement age by 2020. This places domestic stresses on the Chinese Government which needs to keep its own population satisfied in the face of growing demand for better consumer products and services. It was feasible for China itself to satisfy that demand twenty years ago but those days are gone. China’s workers are retiring at an increasing rate and the nation is simply running out of the workers it needs to satisfy its own consumer demand.

This is why India has suddenly become such an important strategic partner for China. The average age of an Indian worker today is just twenty-three—the same as China’s in 1992. India is inheriting the Chinese worker dividend and China needs to put India to work just to satisfy its own domestic consumer needs.

In fact, the institutional infrastructure to put this into place has already begun. China and India are both part of the Regional Comprehensive Economic Partnership Agreement (RCEP) which includes the ASEAN trade bloc of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam in addition to Australia, New Zealand, Japan and South Korea.

The RCEP does away with tariffs on thousands of products right across this region, meaning it will be possible (should your product qualify) to manufacture in India, where wages and land costs are far lower, and export to the China market duty free. Add in the bonus domestic consumer market of India itself plus that of the other RCEP nations and a meeting of minds over China’s huge consumer market—with the middle class expected to reach six hundred million by 2020—and India’s development of a huge, young and inexpensive labor pool starts to become extremely valuable to the Chinese Government.

Li Keqiang’s first goal will be to secure Indian commitments to invest in China but this may not necessarily be in the traditional sense. It may well mean by encouraging more Indian manufacturers to partner with Chinese manufacturers—in India—to then service Chinese consumer demands. I predict a huge growth in Indian-Sino joint ventures over the next few years.

In doing so, China cannot afford to mess around with India any further with border disputes as it has done with Japan in the past. In fact, China may even be prepared to back down from its long term policy of noncommitment to any border disputes and actually decide it is in its better interests to keep India happy and drop claims on Arunachal Pradesh and other areas. China pushed Japan too far over historical war issues and disputed territories and losing the foreign investment largesse of a major investor in China was a huge mistake.

As India takes on the mantle of “world’s third largest national economy” and China runs out of workforce to supply its own consumer base, dynamic trade and diplomatic relations with Delhi are not an opportunity that Beijing can now afford to mess up or miss out on.

This article by Chris Devonshire-Ellis originally appeared at Asia Briefing, May 17, 2013.