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China: Special Comment: A day after Premier Wen Jiabao delivered his valedictory address to the National People's Congress, the Communist Party's Organizational Department announced that Chongqing party secretary Bo Xilai had been replaced by Vice Premier Zhang Dejiang.

Chongqing (previously Chungking) is one of five national core cities - with Beijing, Shanghai, Tianjin and Guangzhou -- and a major inland industrial center, in southwestern China. The city is a modern metropolis and the municipality has more than 28 million people.

International analysts of Chinese leadership trends, such as those writing for the Financial Times, have provided excellent insight into the misdeeds of Bo that brought him down. All cite his flamboyant, charismatic personal leadership style as out of step with the sober men in dark suits who are the members of the standing committee of the Communist Party Politburo that rules China.

Bo was something of contradiction in modern China. He behaved like a western style grip-and-grin politician, but used authoritarian Maoist, or even imperial, tactics, including torture, to root out organized crime. He is quoted as having said, "If only a few people are rich, then we are capitalists. We've failed."

Bo seems to have been a true believer. He instituted in Chongqing songfests featuring the revolutionary songs his father, Bo Xilai who was a colleague of Mao Zedong, taught him as a child. As a son of a revolutionary hero, he was on a fast track to higher positions, until a recent scandal gave his factional opponents, including Premier Wen, an excuse to demote him.

For six years, NightWatch has maintained a theory of contradictions that limit China's advancement. The contradictions are longstanding, unresolved issues that work against each other to limit China's potential.

The replacement of Bo showcases several contradictions. First is tension between party authority, local popularity and Wen's promotion of Chinese-style democracy, including direct local elections, in his valedictory speech.

Wen's democracy looks like an opiate of the electorate, because nine old men in Beijing can change the policy direction of a city of 28 million people by their collective decision, regardless of the will of the people of Chongqing. That is not a conventional understanding of democracy.

A second contradiction involves what constitutes orthodox Chinese communism. Bo represented an updated version of Maoism, but that has now been suppressed through Bo's dismissal. Deng Xiaoping's pragmatic version of communism, as modified by his successors, remains the prevailing orthodoxy, but it is not true to Mao's writings. What is worth noting is that Mao's version of communism, remarkably, still has a strong following.

A third contradiction is that Chongqing's economic success is the result of capitalist influences and practices, but Bo was almost a self-proclaimed Maoist in his management style and ideology. The Soviet experience indicates that capitalism eventually destroys top-down authoritarian orthodoxy.

The Chinese communist leadership structure benefits from capitalist practices, but it also is threatened by capitalism, which always pits market forces against ideological orthodoxy.

These are only three of many contradictions that China has yet to resolve. For now, the nine old men in Beijing have made clear that a return to Maoist-style campaigns and practices are not the wave of the near future. Chinese-style capitalism will continue. Without another revolution, Chinese-style democracy will never replace the power of the politburo standing committee to remove summarily a popular senior official.

Nevertheless, the Beijing leaders have only kicked the can down the road, gambling that prosperity and generational change will square the circles of China's multiple internal contradictions.

India: Update. A court issued warrants for the arrest of three Iranians in connection with a bomb attack in February on an Israeli diplomat's wife, police said on 15 March. A police official said the men were identified as Housan Afshar, Syed Ali Mehdi Sadr and Mohammed Reza Abolghasemi.

Comment: The Indians have no doubt that Iran tried to retaliate against Israeli diplomats in New Delhi, Bangkok and Tbilisi, Georgia, for mysterious bombings and killings in Iran. Iran had blamed Israel for staging attacks against Israeli diplomats.

India-France: For the record. An Indian defence blogger reported this week that the Indian purchase of 126 Rafale fighters for $20 billion is far from completed. India wants the medium multi-role combat aircraft to replace its fleet of obsolete MiG-21 fighters.

Pursuant to a question from a member of parliament, the Defense Ministry has opened an investigation about the sale. The question is why India is the only country with a large air force to have purchased large numbers of Rafales.

Afghanistan: Update. Afghanistan should take responsibility for the nation's security in 2013 instead of 2014, and U.S. troops should pull out of villages, according to a statement from the office of Afghan President Hamid Karzai after a visit with US Defense Secretary Panetta.

The Taliban suspended talks with the United States in Qatar, according to a 15 March statement from the group.

Comment: A pullback to main bases signifies a defensive posture that is not sustainable for long and makes it pointless to maintain combat forces in Afghanistan. An early, well-publicized new appreciation of the capabilities of Afghan forces provides a fig leaf for an early draw down of forces. It also makes disengagement from the Afghan people more palatable and easier to explain. The bottom line is that trust is gone on both sides.

Iran - European Union - Society for Worldwide Interbank Financial Telecommunication (Swift): Swift, the communications provider for secure financial transactions for more than 10,000 financial institutions and corporations around the world announced it will disconnect Iran's banks from the system.

On its home page, SWIFT published the following news item:

"Following an EU Council decision, SWIFT is today announcing it has been instructed to discontinue its communications services to Iranian financial institutions that are subject to European sanctions.

The new European Council decision, as confirmed by the Belgian Treasury, prohibits companies such as SWIFT to continue to provide specialized financial messaging services to EU-sanctioned Iranian banks. SWIFT is incorporated under Belgian law and has to comply with this decision as confirmed by its home country government.

"This EU decision forces SWIFT to take action" said Lázaro Campos, CEO of SWIFT. "Disconnecting banks is an extraordinary and unprecedented step for SWIFT. It is a direct result of international and multilateral action to intensify financial sanctions against Iran."

The EU-sanctioned Iranian financial institutions and the SWIFT customer community have been notified of the disconnection, which will become effective on Saturday 17 March at 16.00 GMT. "

According to its home page, SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,000 financial institutions and corporations in 210 countries. SWIFT enables its users to exchange automated, standardized financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest.

Special Comment: The news bulletin speaks for itself in identifying this as an unprecedented action by SWIFT, a very big deal. Even more, it is an unprecedented act of economic coercion against a state by an alliance system.

International economic analysts have commented on how this will eliminate nearly all conventional channels for Iran to buy or sell nearly anything in the global marketplace, except for face-to-face transactions, which the Indians are attempting to set up. Even those are being constrained because the United Arab Emirates plugged one hole in the sanctions net by halting the conversion of Iranian rials into hard currencies.

This is the first time outside of warfare that measures which target economic infrastructure have been used as a threat management tool in order to prevent an emerging threat from escalating into a crisis. This is a new weapon in its reach and depth that has been created by international communications technology, a form of economic blockade without using military force.

Over time, the disconnection seems likely to lead to a significant contraction of all kinds of economic activity, including a decrease of direct and indirect foreign investment; constraints on Iranian trade and travel; increased economic crimes, unemployment and shortages; and skyrocketing prices from smuggling and irregular transactions.  Another possible ripple effect is that this might also stress Iran's ability to support its proxies. Iran could consider this an act of war by the European Union.

The key measure of its success will be its effect on Iran's nuclear weapons-related activities. For example, it might deter North Korea from providing further help because the leaders in Pyongyang sell their weapons services precisely to generate hard currency. They use banks and cutout financial institutions all over the world to circumvent their own set of sanctions.

The same may be said of the Russians, Chinese and others. Regardless of their positions on sanctions, they all support them now and will learn the true price of sanctions. This measure probably will not prompt Iran to abandon its programs, but it might contain them by limiting them to materials on hand.

European Union members should make contingency preparations for terrorist retaliation and for economic ripple effects on the international banking system.

Iran-Hamas: Hamas Foreign Minister Mahmud Zahar visited Tehran for meetings with Iranian officials, according to the Iranian news agency. Zahar met with Iran's Supreme National Security Council Secretary Saeed Jalili on 14 March.

Comment: This appears to be another example of how Iran has turned up the pressure on Hamas to return to the fold. Zahar may be fortunate to have left Iran before it is disconnected from the global banking grid.

Iran-US: For the record. The United States denied a Russian media report that US Secretary of State Clinton asked Russian Foreign Minister Lavrov to warn Iran that it faces its last chance to resolve the dispute over its nuclear program through diplomatic means.

Syria:  For the record. Syrian President Bashar al Asad's response to UN and Arab League envoy Kofi Annan included three conditions, according to news reports. The conditions were that armed groups cease fire; neighboring countries pledge to stop smuggling arms and men and countries stop funding Syria's opposition.  This remains Syria's consistent view of the causes of discontent.

Syria-France: French President Sarkozy said that the Syrian opposition should not be armed because it will lead to civil war among the Christian, Alawites, Shiites and Sunnis.

Comment: Sarkozy finally got a decent briefing on the problem.

Israel-Gaza Strip: Update. Israeli airstrikes hit the Gaza Strip after Palestinian militants launched a missile at the southern city of Beersheba late 14 March.  Israeli aircraft hit farmland southeast of Gaza city and a second location east of Khan Younis. There is no ceasefire, but the number of exchanges has decreased.

End of NightWatch for 15 March.

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