Dispatch

Sinai's Invisible War

Egypt's new president has used the recent Sinai attacks to clean house. But nobody knows what really happened -- and the military isn't talking.

EL-ARISH, Egypt — Over the weekend, Mohamed Morsy cleaned house. Following weeks of deadlock with the Supreme Council of the Armed Forces (SCAF), Egypt's first popularly elected president finally stepped out of the military's shadow, sacking a laundry list of top generals, including Field Marshal Hussein Tantawi, and annulling a controversial military decree that curbed the president's powers.

The surprising political showdown came on the heels of a devastating terrorist attack in el-Arish, North Sinai, on Aug. 5 that left 16 members of the Egyptian security forces dead and the military looking complacent. Morsy pounced on the opportunity, ordering both a shakeup of the armed forces and an all-out offensive in Sinai, pounding supposed militant strongholds with missiles and helicopter gunships -- the first use of such hardware since the 1973 war with Israel.

But if it's clear that the "Ramadan massacre," as it has become known in Egypt, gave Morsy the political space to outmaneuver the generals, what exactly is happening in the Sinai remains something of a mystery. Who was behind the Aug. 5 attack -- and who has borne the brunt of the military's subsequent incursion -- are still open questions.

One soldier who survived the attack blamed "masked men" with a "Palestinian dialect" in an interview after the fact. Others have pointed to "infidels," "elements from the Gaza Strip," and Israel's Mossad. Few seem to have a firm grasp on the facts.

Yet this was not the first time unknown militants have wreaked havoc in Sinai. For years now, Egyptian security forces have been battling a ghost in the desert. Since the 2011 uprising that toppled President Hosni Mubarak, militants have blown up the pipeline that supplies natural gas to Israel 15 times. Only weeks before the Ramadan massacre, gunmen on a motorbike attacked a military outpost in Sheikh Zuweid, leaving two members of the Egyptian military dead.

Yet analysts have struggled to pinpoint the source of the terror. Some flirted with blaming al Qaeda, while others hedged their bets by fingering groups "inspired by al Qaeda." Takfir wal-Hijra, a loosely organized extremist group with roots in Sinai, is also a usual suspect. The organization views most people as infidels -- including Muslims who fail to follow their strict interpretation of Islam -- and adheres to a radical militant ideology that requires them to purify the world of kufar, or heretics. But aside from a handful of attacks that security forces have attributed to Takfir wal-Hijra, there seems to be little consensus about who is to blame for the uptick in violence.

In part, this is because the extremist groups themselves appear to be proliferating -- or at least morphing. Over the past two years, the Internet has been flooded with statements and videos released by unknown groups vowing to create a puritanical Islamic state in Sinai. A statement released two days before last week's attack by a group calling itself Jund al-Sharia ("soldiers of sharia"), for instance, called for a Sinai "emirate" governed by Islamic law and threatened to attack the Egyptian military if it did not release prisoners the group claimed were "falsely" detained. In reality, however, no one has been able to verify the location or reach of these groups -- or even if they exist outside of cyberspace.

Similar mystery shrouds the Ramadan attack, for which no one has yet claimed responsibility. According to an Egyptian general from the border guard intelligence team who spoke on the condition of anonymity, "There is serious intel that those who committed the Sunday massacre are members of Palestinian Islamic Jaljala Army." The Jaljala Army is an extremist offshoot of Hamas based in Gaza, meaning that its members would have had to cross into Sinai via the intricate web of tunnels controlled by Hamas.

Ibrahim Menei, who owns and operates one of the tunnels, also thinks that Hamas, which has condemned the attacks, is at least partially responsible. "Of the hundreds of tunnels used for smuggling, not more than 10 are designed for smuggling humans in and out of Gaza. They are not more than 200 meters long, and no one enters them without paying a minimal fee to Hamas. You can be in Sinai in 15 minutes," Menei explained to me in an interview.

Both the general and Menei, who has built a fortune over the years smuggling weapons, animals, drugs, food, and building materials into Gaza, agree that Palestinian fighters could not have acted alone. As Menei noted, such fighters would have needed the assistance of "bad" Bedouin who provide safe houses, logistics, and on-the-ground intelligence. In other words, radicals on the Egyptian side of the border must also have been involved in the attack.

But the haphazard response by Egyptian officials suggests that they are as in the dark as ever. Following one of the highly publicized raids on the border town of Sheikh Zuweid, Gen. Ahmed Bakr, the head of North Sinai security, announced that the military apprehended six terrorists including Selmi Salama Sweilam, nicknamed "Bin Laden" by Egyptian authorities for his alleged role in numerous terrorist operations. Three of the suspects were released two days later.

A visit to the village in Sheikh Zuweid where Selmi was supposedly apprehended, however, suggests that the raid was a sham -- designed to appease the public and deflect attention away from the military's incompetence. According to Um Suleiman, the wife of "Bin Laden," masked security forces stormed her home early in the morning, beating her viciously and terrorizing her children. The men ransacked the house, broke down the cupboards, and spilled big bags of wheat and barley on the floor.

"They picked up six men who have nothing to do with terrorism, including our 72-year-old neighbor who was feeding his goat at the time, my 20-year-old son, and my ill, 68-year-old husband, whom they called Bin Laden," she said.

Suleiman and her eight children showed off stacks of date boxes, which she insisted were Selmi's only source of income. "We voted for Morsy to escape Mubarak's injustice. Now we don't believe in him! It's the same way they treated us in 2005 after the Dahab and Sharm El Sheikh bombings," Suleiman complained.

The raids in North Sinai have produced other dubious accounts of how the military is prevailing against those responsible for the recent violence. Last Wednesday, the SCAF issued a statement saying that the operation targeting "armed terrorist elements" in Sinai "has accomplished this task with complete success."

That same day, reports leaked by Sinai security officials to dozens of journalists claimed that battles were ongoing in the al-Halal mountain in central Sinai, where security forces were supposedly pounding Islamic insurgents. But not a single Bedouin or journalist was able to confirm these clashes. Journalists have since dubbed the operation "Sinai's Invisible War."

More misinformation came from an overzealous state TV reporter who announced on Wednesday that 20 militants had been killed in the village of el-Touma, in the Sheikh Zuewid district of Sinai. Journalists and Bedouin flocked to the scene and later to the el-Arish hospital, but no bodies were ever located. Residents showed the press parts of two spent rockets and the charred remains of a vehicle, but that was the extent of damage.

Following the report, official security spokesmen who are usually media-friendly went mute and stopped answering their phones. Wire services and other media outlets broadcast the figures globally, announcing that 20 insurgents had been killed. But the initial report was never confirmed. In fact, it was almost certainly false. The journalist who first reported the attack on Nile TV through a phone interview has been exiled from Sinai for more than a year because of his reputation for feeding lies to the media. He actually reported the attack from the city of Fayoum, located in another Egyptian directorate some 260 miles away.

Soon after, the same reporter fed a story to another media outlet about an attack on the United Nations multinational peacekeeping force (MFO) based in Sinai. MFO spokesman Kathleen Riley denied the attack outright, calling it an "inaccurate report."

Al-Ahram, a state owned newspaper, ran a similarly dubious story on Friday, claiming that 60 "terrorists" had been killed in airstrikes. No bodies were ever recovered.

Over the weekend, el-Arish's residents greeted a long convoy of jeeps carrying rocket launchers and M-60 tanks aboard flatbed trucks. Onlookers waved dutifully to the troops as they headed toward the front lines, but they were undoubtedly wondering where this "invisible war" was taking place.

STRINGER/AFP/GettyImages

Dispatch

China's Debt Bomb

Half an hour from Beijing, the potential ground zero of the Chinese real estate meltdown.

TIANJIN, China — The Binhai New Area in the municipality of Tianjin looks like a cross between a desolate stretch of the New Jersey Turnpike and the bottom of the ocean. Half-built residential high-rises shimmer in the sun-baked distance, so far apart that even thinking about walking between them is exhausting. Construction workers in yellow hard hats cross the road gripping sledgehammers; they look like schools of weary-eyed fish.

"That's an indoor rain forest," Dong Cui told me as she waved toward an I.M. Pei-style glass pyramid through the window of her silver Audi A6. "This is a cruise port," she said later, pointing at a curvy postmodern edifice many miles down the highway. "That over there will be a Hilton." Dong is a manager of San'Ai Business Exchange Co., a private organization that takes investors and government officials on driving tours of the area. On a hot day in early July, I was her only client. "This place is a kind of miracle," she told me. "It shows that our government can accomplish whatever it wants."

Welcome to Tianjin, China's sixth-most populous city and perhaps its biggest property bubble. A half-hour train ride from Beijing, a 200-mile-an-hour straight shot through open farmland and industrial sprawl, Tianjin was long known as a shipping hub with uncommonly tasty steamed pork buns. It is now considered a "dual-core city." Its old quarter is quaint and tree-lined, sprinkled with European and American architecture built in the late 19th century, when the city first opened up to foreign trade. Its other "core" is the Binhai New Area, an 876 square-mile swath of salt pan, wetlands, and old fishing villages now home to 2.48 million of the city's 11 million inhabitants.

Binhai's scope is difficult to fathom. The area is home to the largest cargo airport in northern China and the fourth-busiest seaport in the world. Slightly inland is the 12 square-mile Tianjin Eco-city, a $22 billion Sino-Singaporean joint venture where the area's white-collar workers will live in wind- and solar-powered homes. Along Binhai's 95-mile coastline is a $3.82 billion Israeli-made desalinization plant and an artificial beach, its sand imported from the southeastern province of Fujian. Docked nearby is the Kiev, an old Soviet aircraft carrier that has been converted into a theme park and a five-star hotel. Three yacht marinas are under construction. The Binhai New Area "is already the country's third engine of economic take-off after the Shenzhen Special Economic Zone and the Shanghai Pudong New Area," one high-level Binhai official stated in a promotional pamphlet last year.

Binhai officials have borrowed upwards of $64 billion to finance their vision, and their strategy seems to be working. Tianjin's GDP officially grew by 16.4 percent in 2011, the highest in China (tied with the municipality of Chongqing) and faster than any country in the world except Qatar. Much of this growth was driven by Binhai. Tianjin's per capita income is now close to Beijing's, a major coup for the city that has long been considered Queens to Beijing's Manhattan. But shady accounting schemes could mask major financial risks lurking just beneath the surface. "If you look at the local debt to local revenue ratio, one of the largest and worst debt bubbles exists in Tianjin," Victor Shih, an expert on Chinese financing, said in an interview with the bank Credit Suisse in March.

In 2008, the central government issued a $586 billion stimulus program to help China weather the global financial crisis, and local governments were suddenly awash in easy credit. They splurged on subways, airports, luxury condominiums, and five-star hotels -- anything that would boost short-term GDP growth. According to China's National Audit Office, local governments had amassed about $1.7 trillion of debt by the end of 2010, about 27 percent of the country's GDP -- but other estimates put the number at almost twice that. Tianjin took out more loans than any other Chinese city in 2009, increasing its outstanding debts by 47.2 percent, far above the national average.

Like other local governments, Tianjin officials typically borrow money through shady financing companies to skirt borrowing regulations, making the city's balance sheets difficult to assess. Tianjin officials insist that their companies -- often called "local government financing vehicles" -- are on solid financial ground. Last September, Vice Mayor Cui Jindu said that the city's financing vehicles had paid off over 80 percent of their loan principle due in 2011. He added that Tianjin should be able to clear its debts, with one caveat: "If we end up not getting a single new loan, there could be problems," he said.

China's financial system might well weather an explosion of defaults, even as the country enters into its worst economic slowdown since 2008. Yet loads of bad debt could also result in inflation, a prolonged economic slump, or even a financial meltdown. "You don't know where debt risk is going to rear its head," said Patrick Chovanec, a professor of economics at Tsinghua University in Beijing. He mentioned Cui's remarks as possible evidence of pandemic check kiting, a type of fraud. "You basically keep the game going by writing more and more bad checks," he explained, "which disguises the fact that you have nothing in your bank account."

Binhai New Area officials say that the area is poised for success. After all, it's close to Beijing, it's home to a thriving seaport, and it has strong support from the central government. They envision its highways choked with cars, its hotels booked to capacity, its office towers generating strong returns. Yet the city's goals could be too big to achieve. The mammoth state-owned enterprise Tianjin Infrastructure Construction and Investment Group Co. recorded over $45 billion of debt in 2011, more than any other local government financing vehicle in China. Another local financing vehicle recently sold control of a $1 billion securities firm to a state-owned bank to help minimize its debts. If the area's investment pipelines dry up, Binhai could end up a ghost town, its half-built high-rises forever uninhabited.

Locals point to the thriving Tianjin Economic-Technological Development Area (TEDA), a special administrative zone within Binhai, as an indicator of the area's potential success. TEDA was established in 1984 with approval from then-paramount leader Deng Xiaoping. An impressive list of Fortune 500 companies has established offices there, including Nestlé, Motorola, and Airbus. A TEDA promotional booklet boasts that the area has attracted residents from over 30 "overseas regions" and countries. "You are welcome to get a taste of this melting pot of cultures, languages, customs, peace, and harmony," it says.

An exhibition hall in the TEDA government office is a testament to the strange aesthetics that arise from coupling stodgy officialdom with a sleek corporate ethos. One room is outfitted with a table-sized touch screen displaying animated butterflies in a grassy meadow. An exhibition hall staff member told me to rub one of the butterflies. When I did, it unfurled into a photograph of TEDA officials at a formal reception holding award certificates and placards. My tour ended in a small theater, where I put on 3-D glasses and watched a computer-animated movie about the area's long-term plans. It involved a 19th-century schooner floating above a skyscraper-filled metropolis. Its English-language soundtrack was incomprehensible.

Just down the road, the Yujiapu Financial District underscores Binhai's long-term risks. The district is a 1.5 square-mile, decade-long construction project that authorities say will someday be the largest financial center in the world -- a veritable replica of Manhattan, complete with an underground shopping mall, a three-tiered train station, and a homegrown Rockefeller Center. It's currently a forest of cranes. "For Tianjin to become a major financial center, that would imply that somebody else would move down the ranks, and I can't see that happening for Shenzhen or Shanghai or Beijing," said Fraser Howie, the managing director of CLSA Asia-Pacific Markets in Singapore and an expert on China's financial system. "The chances of bringing people there I think are going to be remote."

My last stop on the trip was the Binhai International Convention and Exhibition Center -- a pocket within TEDA comprised of the exhibition hall, a light-rail station, a shopping mall, and a stadium used by TEDA's own soccer team. A program director at the exhibition center, Guan Xu, walked me slowly through the cavernous, empty space, and he explained that government subsidies allow it to maintain a healthy cash flow. Analysts explained that recording a healthy cash flow makes the area appear fiscally sustainable; maintaining an appearance of fiscal sustainability could help the area attract additional investment. "As with any investment, there's an initial period where you're hungry for businesses, and you can't say you have a 100,000 square-foot exhibition hall and it's in ruins," Howie said.

As we walked outside, Guan admitted that the area's emptiness could be overwhelming. "In Binhai, productivity is everything," he said. It was pouring rain, and the puddles reflected a colorless landscape of vast public plazas and unadorned concrete. I asked Guan how he occupies himself on the weekends. He pointed at a collection of white plastic chairs and bright red awnings outside the exhibition hall -- a beer garden. I asked whether it was any fun. "Nobody really goes there," Guan said, shaking his head. "Perhaps they haven't done enough advertising."

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