Category Archives: CCP

Beijing scores again


Communist China has scored another significant blow in its expansionist drive to establish sovereignty – and military bases – athwart the critical South China Sea naval passage.
Beijing’s game was subtle but it could be decisive in blocking a joint effort by the Southeast Asians backed by the U.S. to resist further Chinese penetration.
It’s generally believed in Asia that the Chinese used powerful persuasive weapons to force the Southeast Asians to back off a public statement condemning Chinese policy and action. Foreign ministers of the Association of Southeast Asian Countries [ASEAN] withdrew their prepared statement which was to conclude their annual meeting with the Chinese in Kunming in south China,
The statement had expressed concern over developments [initiated by the Chinese although they were not named] that had “eroded trust and confidence”. It also stressed the importance of freedom of navigation and overflight of the South China Sea. The statement insisted that resolution of the Chinese claims to reefs a thousand miles from the China Mainland, which it has been enhancing and expanding into military bases, should be submitted to international arbitration. The whole process recalls Soviet [and Chinese] “salami” tactics by first establishing themselves in disputed areas and then forcing acceptance of Chinese sovereignty, as part of a new bargain to be negotiated.
The Philippines has taken its protests against further Chinese expansion to The World Court in The Hague. The move had the general support of the other ASEAN states – Singapore, Indonesia, Malaysia, Thailand, Vietnam, Cambodia, and Burma – in an effort to halt further Chinese construction and expansion over their own claims. But China [with support from Russia] has refused to acknowledge the Court’s jurisdiction.
Malaysia’s foreign ministry announced the statement had been retracted only a few hours after it had been issued. The statement had made the continuing arguments of ASEAN backed by the U.S. that argued for the importance of freedom of navigation and overflight of the South China Sea, and called for disputes to be resolved in accordance with international law.
There was a consensus that China had put pressure and made overtures bilaterally to the individual countries – using its growing economic and political penetration of the region – to force withdrawal of the statement. Chinese spokesmen were quick, however, to deny that there had been Chinese pressure to withdraw the document.
In fact, the unity of the ASEAN countries on the issue has been constantly eroding over the last few months despite Washington’s efforts to support a united front against Chinese aggression. As far back as the 2012 annual meeting of the ASEAN group, they disbanded without a final statement because members could not agree on wording regarding the China issue. Some have seen the $2.3 billion acquisition of Malaysian State Fund’s 1MDB energy assets by China General Nuclear Power Corp as part of the background for Kuala Lumpur’s taking the lead in backtracking from the statement.
ASEAN’s original statement had the full backing of the Obama Administration which has sought Southeast Asian unity as a hedge against Beijing’s expansion into the area. And it could only be seen as another defeat for the Obama Administration in its effort to pursue a general strategy of withdrawal from what the President views as the U.S. record of provocation and overseas overextension. Washington has been counting on ASEAN to maintain a unified front against Beijing even though there are contradictory claims among them over the disputed territories.
Among the interpretations of this diplomatic coup for the Chinese will be an increasing perception of weakening American power in the western Pacific despite the U.S. long-term insistence on freedom of the seas.
sws-06-23-16

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America’s growing China problem


The U.S. and China are facing a collision on a wide spectrum of issues, from economic to a gamut of political and military concerns.
The arguments flew thick and fast at the annual Shangri-la discussion in Singapore last weekend. Curiously enough, China has a new defense against economic protests from the Europeans as well as the Americans. Finance Minister Lou Jiwei in the annual bilateral meeting of the two countries’ cabinet ministers this week in Beijing asked where foreign suppliers were when China was in full expansion a few years ago. Why didn’t they see the oversupply [and consequent dumping] coming?
Lou also argued that China is no longer a centrally planned economy with its private sector now going full blast, producing a disproportionate amount of the surpluses. That seems unrealistic given the tendency of the huge government monopolies with their preferred access to capital to go their own way whatever market conditions. Hidden in Lou’s explanation, of course, is Beijing’s call on the U.S. and the other members of the World Trade Organization to call label it a “market economy’, thereby loosening even more strings on production.
The truth is that Chinese Soviet-style planners have, indeed, lost control of their model. True enough, a private sector has arisen which is contributing disproportionately to the total production in many industries. That’s especially true for steel which the Chinese are dumping in Europe and the U.S. at below costs on already embattled Western industries.
China’s four government banks, under political pressure from local Communist Party officials, are overextended. In the process, with the usual Chinese commercial genius, debt centers and private banking has further extended credit to failing manufacturers creating overcapacity throughout the economy. Export subsides and currency manipulation send these surpluses on their way to foreign markets, especially with China’s own once fast growing economy now in the doldrums.
Equally troubling are the growing Chinese claims for regional naval dominance. Building military outposts on enhanced reefs in the South China Sea a thousand miles of the China mainland appear a challenge to nearer neighbors, the Philippines, Vietnam and Malaysia. Beijing adamantly rejects Manila’s approach to the World Court for a decision on conflicting claims, seeking support from Moscow who faces similar threats over its actions in Ukraine.
The Chinese threaten to declare a zone of international air control in the area as they did – with foreign rejection – in the East China Sea near Japan. It’s true that Chinese export manufactures and imported commodities such as Mideast oil make up the largest part of the region’s traffic. But the U.S.’ traditional advocacy of freedom of the seas throughout the world going back to its earliest days of its first foreign wars against the Barbary Pirates – is at stake.
Perhaps the most dangerous aspect of the U.S.-China encounter is its relationship to the internal politics of China’s ruling party. Pres. Xi Jinping is trying to make himself into another all-powerful Mao Tse-dung. Differences with the U.S. are used by his opponents in the intra-Party scuffles. His domestic concerns were reflected in a comment at the annual Sino-US Strategic and Economic Dialogue: “Some differences can be solved through hard work. [But] Some differences cannot be solved at the moment.”
Xi may have been referring in part to the growing difficulties in cutting back on overproduction at the regional and local levels. A warning in the People’s Daily, the official voice of ruling Party, about high levels of debt was widely interpreted as a signal to Mr Xi from Party opponents not to waver from making difficult economic reforms. However, analysts doubt local governments’ willingness to close plants and lay off workers in oversupplied industries such as steel. That comes at a time Beijing is increasingly coming down on foreign investors, apparently in another effort to placate local Party and industry interests.
As Xi argues, the relationship between the world’s largest developed country and the world’s largest undeveloped economy may be the most important in the world. Mired in the continuing Mideast crisis and its resultant refugee flow, it has taken second place at best for the Obama Administration. That isn’t likely to be the case for the new executive taking over January 2017.

sws-06-15-16

Coddling the US-Japan alliance


More than ever before – the history stretches back to the 1950 Korean War outbreak and recognition that the Cold War had come to Asia – U.S.-Japan relations are the keystone of American strategy for peace and stability in Asia. .
But tending a vast network of bilateral and multilateral connections in which Japan plays a role is as important as cultivating all the bits and pieces of the bilateral alliance. That’s true even with the alliance’s permanent sore spots such as Okinawa with its local radicals and blackmailers. The recent slightly deemphasis of Okinawa with U.S. troops transfers and power projection to Guam are only a slight modifications of a larger strategic concept.That American Okinawa base along with other Japanese Main Island air and navy installations – particularly the naval base at Yokosuka so close to Tokyo — remain central to the U.S. East Asian strategic interests.
Coaxing Japan — with a significant and potent resistance from those clinging to the old illusion of the radical pacifist constitution written by the American Occupation — is among the most important U.S.’ diplomatic Asian projects. It includes trying to integrate Japan’s potential military power as well as its great economic clout into a multinational alliance.
Unfortunately, perhaps the most crucial link between two American bilateral Asian allies, Japan and South Korea, is constantly butting up against the history of Tokyo’s often embittered occupation of the peninsular. North Korea’s sympathizers and as well as genuine Korean nationalists have a hard time forgetting this past. Beijing, increasingly more pragmatic, has exploited this gaping hole in the U.S. strategy with a campaign of seduction of Seoul. It has done so even at the expense of its relationship with its satellite in Pyongyang but who is increasingly dependent on Beijing for its economic survival. So far Beijing’s ability to balance these two relationships has exceeded expectations in Washington and Tokyo and suggests the enormity of the growing problem of how to deal with China,
However strong the aversion to “creating an enemy” in some American academic and political circles, “the problem of a rising China” is growing. China’s aggressive military expansion into the East China Sea where it challenges traditional Japanese claims and its creation of new bases athwart one of the world’s most important naval highways in the South China Sea have to be a cause of concern. Hopefully, China’s still “developing” economy dependent on its successful trade with the U.S., Japan and other Western industrial states, is a counter to its more chauvinist forces. But the increasing reliance of Communist Party Chief Xi Jinping on the military as he has tried to build a highly personalized regime is a source of concern.
All this, of course, led then Secretary of State Hillary Clinton in 2012 to announce “a pivot to Asia” for U.S. foreign policy. While the Pentagon dutifully announced readjustment of forces, in fact the Mideast crises have continued to ensnarl the Obama Administration. That’s despite its overall goals of reducing regional military commitments as part of the Obama general retreat by the U.S. from world leadership. The “pivot’ has been furthered encumbered by China’s growing regional economic influence, even among the Southeast Asian states who feel threatened.
The latest example of these complications is the decision by Australia to go to the French – for an advanced design – with a $50-billion submarine program over the next decade. The Australian buildup is an important part of what Washington would like to see as a grand alliance among Japan, the Southeast Asians, India and Australia to curb Chinese military expansion. The Japanese had been favored by the Americans for the contract but lost out, at least in part, because of Tokyo’s amateurism in military equipment export diplomacy – only recently begun by Prime Minister Shinto Abe as the latest in the stretching of Japan’s “no war” constitution. Tokyo is convinced that Australia’s dependence on China for massive raw materials purchases, and Beijing’s opposition to the Japan bid was the main obstacle.
The complexity of the Asian scene will continue to dog the last months of the Obama Administration and leave a legacy of demands for diplomatic expertise of the highest caliber for the next administration.
sws-04-26-16

Washington’s China problem


 

The U.S.’ confrontation with an increasingly powerful and incipiently aggressive China is getting much more complicated.

There is no question of its high priority among the U.S.’ foreign policy issues. But with a lame duck Obama Administration which has pursued a policy of retreat from involvement in crises areas as a solution to what it saw as U.S. over commitment, there is grave danger of a clash as a result of misperceptions by either side.

Were you a Chinese strategist attempting to measure an American opponent’s intentions, the contradictory U.S. positions might well be so confusing as to be unintelligible.

On the one hand, Washington has either ignored – or some would say, encouraged – a massive trade with a deficit of $365.7 billion in 2015 in Beijing’s favor, slightly up from the previous year’s record $343 billion. It could well be argued, and is in some quarters, that while this arises in no small part from China’s manipulation of its currency, it is a net gain for the U.S. China, a capital short economy with a relatively backward civil society, is in fact subsidizing exports to the U.S., even if that is at an American cost in lost manufacturing producing grave social and political problems with its loss of jobs.

On the other hand, some U.S. policymakers obviously are alarmed at the penetration of the Chinese into areas of the American economy that present security risks. The U.S. Commerce Department has just announced new restrictions on exports of American products to the Chinese telecommunications equipment maker ZTE. The Chinese company makes routers and switches for telecommunications operators, mobile phones and offers telecom software services. Now an international giant, it is the outgrowth of a company organized in the late1980s by a group of investors with ties to China’s Ministry of Aerospace. It has become the paradigm for Chinese Communist “state-owned and private-operating” entities, some mammoth dinosaurs absorbing too much capital with their favored political access, but some like ZTE becoming relatively efficient and competitive international operators.

But in Washington, the Chinese company is now suspected of having violated U.S. sanctions on Iran. Despite its sophistication, the company is still heavily dependent on U.S. component chipsets and software. So the Commerce ban on hardware – not yet on software – weighs in heavily on what were 80% of the company’s 2014 sales. The U.S. Commerce Department action has forced the company to at least temporarily delist on the Hong Kong and Shenzhen stock markets.

Beijing has been trying to break this kind of American technological hold – if not the actual dependency – by last year putting in bids for American and Taiwan chip producers. But it again faced U.S. regulatory restrictions and these efforts were not successful, even in Taiwan where local business interests while increasingly dependent on Mainland markets are technological and managerially superior.

The ball is now in Beijing’ court again as to how it will respond to the new American restrictions. But perhaps as important is at what level in the American political establishment such complex problems of dealing with the Chinese geopolitical conundrum are acknowledged, much less understood.

While the U.S.-China relationship on the one hand exists at this complex politico-economic level of shared technology, much more crude Beijing thrusts have to be an American policy concern. China is continuing to dredge up shoals and build military bases a thousand miles from its southern coast in the South China Sea, athwart one of the most important commercial and strategic sealanes in the world. Its growing naval strength is trying to break through East Asia’s inner islands chain – dominated by Taiwan — threatening Japan in encroaching in the East China Sea off Korea and the Japanese home islands and American dominance in the Western Pacific.

This year’s formal allocation of a reduced rate of growth of Chinese military expenditures might be welcomed in Washington – although they represent only a fraction of real expenditures on armaments and military personnel. But the fact that uniformed Chinese military are being quoted in the official Communist media – an unheard of phenomenon – critiquing this “cutback” is perhaps even more disturbing. It has to mean that the power of an expanding and ambitious Chinese military in deciding overall China policy is growing. That is a major development that even U.S. China-watchers have not been prepared for, and poses new problems for American strategists, in and out of government.

sws-03-07-16

 

 

 

Obama and Christians


 

Pres. Barack Hussein Obama’s attitude toward the persecuted minorities in the Middle East has become nothing short of bizarre.

He has taken a muted attitude toward the problem of the persecution and threatened annihilation of some of the oldest Christian communities in the Middle East. Curiously there also have been only subdued protests from the American Mainline churches, infatuated with their social and political programs. While the Vatican has sounded off against generally against persecution of Christians, it too has given them less than their due.

Last week Obama belatedly chose to visit a mosque to reassure American Moslems against any backlash from the activities of the Islamic terrorists. It came seven years into his two administrations rather than the only two weeks Pres. George W. Bush had taken after 9/11 for a similar gesture.But in his sermon to the congregation, Obama apologized for acts of revenge and discrimination against American Moslems. In fact, there have been only isolated instances.

On the contrary, there has been considerable evidence that mosques throughout the country have been used by jihadists as propaganda and recruitment centers.  Futhermore, American Moslems attempting to isolate the terrorists and make the distinction between the great mass of peace-loving co-religionists were shocked by Obama’s choice of venues. The Administration chose a mosque with strong past associations with the Moslem Brotherhood and its terrorist offshoots.

This appears a manifestation of the sympathies of many of Obama’s closest advisers on Islamic affairs who view the Brotherhood as some sort of Islamic version of Western Christian Democrats. Their presence and influence in this Administration channels the infiltration of Communists in the U.S. and other allied governments during World War II. It has added to the confusion of the Obama Administration’s policies in the Middle East.

Although the President now proposes to bring in large numbers of Syrian refugees – without the capacity as Administration spokesmen have admitted to eliminate planted jihadists – it has turned a blind eye to Christian persecution. Only a few dozen Syrian Christians have received visas. The Administration’s explanation is that it cannot discriminate on religious grounds. But it is obvious that Christians in countries where the jihadists have control are a political class and not just a religious group. Meanwhile, some of the oldest Christian sects in the region of its origin are being obliterated through violence and forced flight.

Obama’s attitude and policies run the risk of repeating the shame of the 1930s when the Roosevelt Administration refused to accept German Jewish refugees and later other European Jews. Anti-Semites in the then Consular Service blocked their entry until 1944 – long after Hitler and the Nazis had adopted “the Final Solution” – when under the auspices of the President’s wife, Eleanor Roosevelt, the War Refugee Board was created.

 Until then only small groups were admitted under strict quotas and through the intercession of fellow professionals organized in such groups as the International Rescue Committee. Many of these talented refugees contributed to the U.S. war effort. It was Albert Einstein, a German refugee, as a spokesman for fellow German and Austrian refugee scientists, who warned FDR that the Nazis were working on nuclear weapons, spurred Washington to initiate the supersecret Manhattan program to develop an atomic bomb.

Now a new wave of Christian persecution has begun under the Xi Jinping regime in China. This time Xi has moved against the leadership of the government-sponsored Christian Communist Party front groups, Christianity in China, the Three-Self Patriotic Movement and the China Christian Council. The central government in 2014 named religion as one of four “severe challenges” to national security. Beijing has demolished more than 1,800 crosses across Zhejiang province, home to officially sponsored Christian organizations. Pastor “Joseph” Gu Yuese, one of those Christians most associated with the government-sponsored churches, is under prosecution.

The new Communist crackdown may be the result of the extraordinary growth of Christianity in China. In 1980 there were an estimated 10 million Christians in the People’s Republic, but by 200760 million. These numbers suggest an annual growth rate of 7 percent yield which means that by last year, there were nearly 100 million Chinese Christians. The conversions have been most dramatic among the educated, explained by some observers as a part of an attempt to cope with the Westernization of Chinese society as it rapidly industrializes.

While Obama has reported he brought up the question of closing of Chinese churches in recent talks with Xi, the growing persecution is going to demand a more forceful American response, both from officialdom and the American churches.

sws-02-07-16

A Chinese bombshell


The unanticipated Singapore meeting Nov.7th [Saturday] of People’s Republic Pres. and Communist Party Boss Xi Jinping and Republic of China [Taiwan] Pres. and Kuomintang Party leader Ma Ying-jeou is a bombshell in Chinese and East Asian affairs.

It is not only the first encounter of the two heads of rival Chinese states and movements since the defeat and retreat of Generalissimo Chiang Kai-shek to Taiwan in 1949, but it is precedent shattering on a number of other counts.

The Beijing Communist regime has always insisted the Taiwan institutions have no validity, that they are in fact the presence of a rogue regional regime in rebellion against their own legitimate central government. Much of the world has not accepted that characterization – and with the stability and exceedingly successful economic model on the Island – has maintained  various nonprotocol relationships with Taipeh.

The U.S. link, considered by both sides as essential to Taiwan’s continued success, was enshrined in the 1979 Taiwan Relations Act. America’s formal acceptance of the Beijing de facto control of the Mainland came after years of Washington refusing “to recognize” a Communist regime. Much of that new role – for example, its veto on the United Nations Security Council – had come from the Franklin D. Roosevelt Administrations insistence that Chiang’s China be accorded great power status after its long struggle as a victim of European colonialism and Japanese aggression. But the Act, by a recalcitrant Congress after Pres. Jimmy Carter switched sides, not only maintained an American relationship with the then Kuomintang regime but assured it of continuing military aid support to sustain its independence.

Beijing’s tacitly made a concession to the Taiwan Chinese – and the U.S. – by an offer for reunification under the slogan “one country, two regimes”. But Beijing until now has always refused the protocol concession of treating the Taiwan government as an equal negotiating partner. And, indeed, the forthcoming meeting is being carefully circumscribed by referring to Ma only as Taiwan’s “leader” and describing the summit as a “pragmatic arrangement”.

Hwoever, this abrupt break by Beijing with what was considered an sacrosanct policy is explained by Xi’s growing personalized power structure in Beijing. First and foremost, as a former Communist leader in the coastal regions on the Mainland facing Taiwan, he considers himself an expert on Taiwan politics. That, coupled with his own hard-charging personal takeover of the Communist Party as no leader since Mao Tse-tung in the 1950s, emboldens him to take what other Communist officials would not have dared. By offering some measure of conciliation – although little of substance is likely to come of this particular meeting – he hopes to strengthen Beijing’s current pitch as a responsible member of the world’s family of nations.

A more important explanation is that Xi is lending his support to Ma’s Kuomintang Party, which according to all the polls, has collapsed in anticipation of January elections. The opposition Democratic Progressive Party, with a long history of putting distance between Taiwan and the Mainland, even suggesting formal independence, is now headed for a landslide. Whether, in fact, Xi’s gesture may not backfire is the subject of current debate in Taiwan where the growing unpopularity of the Kuomintang is linked to Ma’s ambitious series of economic and political agreements with the Mainland.

Student groups and other political activitists have been increasingly critical of Ma’s moves. The growing friction between local interests in Hong Kong and Beijing has also influenced public opinion in Taiwan. The same “one country, two regimes” was used to smooth the 1997return of the former British Colony to China. But recent encroachments on local government and, ironically, former British freedom of speech and equality before the law, have been noted in Taiwan.

Only time will tell if Xi has overplayed his hand. But it is certain that this new nuanced play of Chinese forces increases the importance of the U.S.’ own China policy, with Taiwan’s critical strategic geography again a growing factor in aggressive Beijing moves in both the East China and the South China Seas.

 

 

Tragic Maoist inheritance continues


 

After decades of brutal – and often corrupt – enforcement, Beijing has announced the end of its one-child per couple policy. Introduced in 1979, it may have prevented as many as 400 million births in the world’s most populous country.

But the end of the one-child policy will not stop Beijing’s attempt to control reproduction including forced abortions and sterilization. The effort at population control has been so draconian that bloody seventh-month pregnancies were reported in 2012 after failure of a couple to pay a 40,000 yuan [$6,338.37] fine. [Average annual wages in China in 2014 were 56,339 yuan.] The fines brought the government about 2 trillion yuan [$314 billion] since 1980, but there has been no public accounting where these monies went. That’s why there is widespread skepticism even if the restrictions were abandoned, it would result in additional financing for public health.

Not officially acknowledged, of course, is the now built-in lobby for some continued population control by a large bureaucracy with almost unlimited powers operating even in remote rural areas. The two-child limit will still require official permission for the second child — so bureaucrats will still have the power to say no, or in some cases to assign fines.

Communist authorities have had to move, not out of humanitarian concerns and continued foreign protests, but because of a demographic catastrophe overtaking the country. Demographic trends are notoriously hard to predict, of course. A recent example has been the turnabout in birth rates among Israeli and West Bank Arabs which have dropped substantially, whereas birth rates among Israeli Jews [and not just the religious] have increased substantially. The trend somewhat negates the old argument that Arab majorities would inevitably dominate the region.

But in China, about 30% of the population is now over 50, with the threat of rising social costs and a depleting work force. It’s what is called among a very practical Chinese public with limited calls on a government social network, 4-2-1 — four grandparents and two parents dependent on one child. Again, falling birthrates are dogging many of the world’s developed economies, especially China’s neighbor, Japan. But the announcement of new rules has not been greeted enthusiastically on China’s social media; many urban couples report they simply cannot afford nor do they want to jeopardize their present rising living standards with another child.

One of the worst aspects of the one-child regime was infanticide against females. The upcoming census is expected to reveal a gender ratio of 122 boys for every 100 girls, typically replacing 105-106 boys for every 100 girls. There are already today 35 million young Chinese men, more than the population of Canada, for whom there are simply no female partners.

One solution being suggested in non-official quarters, is encouraging immigration of Southeast Asian workers. There are already reported to be tens of thousands of illegals from those countries working in China’s manufacturing. But so far there has been no official government supported programs of in-migration of younger workers.

It is not clear whether the new regulations will cover so-called “illegal” children, that is, those born beyond the one-child limit to couples despite the regulations and fines. Government census report there are at least 12 million, but informed observers reckon there are two or three times that number not registered for fear of government reprisals. That would make them as many as 3% of China’s 1.37 billion.

There is obvious “lesson” in Beijing’s madness. It is the inhuman, immoral and inoperative effort to control population through government fiat. But untangling the mess would be monumental, even were there the will among the huge Chinese Communist bureaucracy — some 50 million officials, amounting to about one official for every 27 people. As long as Communist elite rules, that is extremely unlikely.

sws-11-01-15.

 

 

 

 

 

 

 

 

Big Chinese rats, slowly sinking ship?


Word that Beijing’s favorite multibillionare Li Ka Shing is disinvesting in China has added weight to reports that what purports to be the world’s second economy is in trouble.
In fact, People’s Daily, the regime’s No. 1 mouthpiece, attacked the 87-year-old Hong Kong property, telecoms and port tycoon after the reports of his transfers appeared in other controlled Chinese media. In the past, Li has had official support in expansion of his enormous holdings.
Li’s denials haven’t reduced the growing concern elsewhere about the China outlook. The fact that Li also appeared to be moving his operations, which started with a fortune in artificial flowers, more and more out of its original Hong Kong setting is adding to the importance attached to his actions.
Local media have guessed that Li has unloaded some $16 billion in Mainland China assets in the last three years. As one of the world’s wealthiest if not its richest businessman with assets estimated at more than $33 billionm that would still be only a portion of his assets.
In a three-page denial, Li referred to his companies being “more prudent” toward real estate investments in China, reflecting a general consensus that one of Beijing’s problems is how to handle a growing property bubble. But with China’s gross domestic product growth now officially estimated at the lowest in almost three decades, the Communist Party’s attack seemed not only bitter but defensive.
“Li Ka-shing’s choices do appear particularly brazen,” the paper snarled, “In the eyes of ordinary people, we shared comfort and prosperity together in the good times, but when the hard times come he abandons us. This has really left some people speechless.”
Li’s statement claimed that unlike some Chinese investors, he did not hold land as a hedge against inflation or other economic downturns. Although many of Li’s properties are held through offshore sanctuaries in the Cayman Islands and the British Virgin Islands for Hong Kong stock market listing purposes, he argued some of his Mainland investments including retail stores had been increasing. And he said he is a full-fledged backer of Communist Party chief Xi Jinping’s reform program.
But Li’s plays add to a growing body of evidence that not only is China’s growth declining to new low levels but the speed of the fall is leading to growing pessimism. Pessimists are still a minority to those who while they see a period of major readjustment, believe the Chinese economy will continue to thrive if at a much lower level, as it sheds its massive infrastructure investment strategy for a new consumerism.
The pessimists point out, however, that the Chinese economy sailed through the 2007-08 worldwide financial crisis by an unprecedented credit expansion. That has led to bank debt growing from $14 trillion in 2008 to $25 trillion today – more than double the total US commercial banking sector. To facilitate this, Beijing has printed money – at an unprecedented rate, one that historically elsewhere has led to financial chaos.
Furthermore, most of this credit has gone to the monopolistic huge government corporations with their incestuous relationship with the Communist Party. They are notorious for corruption, inefficiency and producing fewer jobs – now the main excuse for one-party rule. At the same time, China’s miraculous manufacturing expansion was based on an abundant low wage pool – now drying up as a result if its one-child birth controls policies. Rising labor and other costs are reducing the capacity of Chinese exporters to compete with other low wage countries and growing productivity in some markets, including the U.S.
The Shanghai stock market rollercoaster – which the authorities unsuccessfully have tried to curb with every tool at their disposal – could be a sign that a debt crisis is imminent. That’s why Li’s backing out of the economy could represent one giant and canny player recognizing that possibility and preparing for it.
sws-10-03015

Xi and his military


On the eve of China’s Pres. Xi Jinping’s arrival for an elaborate state visit to the U.S., a testy little incident has taken place over the Yellow Sea. A week ago two Chinese fighter-bombers made what the Pentagon calls “a dangerous interception” with a slow-moving U.S. spy plane on its regular patrol of the area.
Republican U.S. Sen. John McCain, chairman of the Senate Armed Services Committee, said the incident “shows that China feels emboldened to continue its pattern of aggressive behavior in the Asia-Pacific region.” Timing of the incident ahead of the Chinese president’s visit “raises further questions about China’s intentions and the Obama administration’’s response thus far,” McCain said.
Aside from the possibility it could have turned into a major incident, it appeared to confirm earlier statements that Beijing has unilaterally taken the Yellow Sea out of the sphere of international waters to claim it as Chinese territory. Those Chinese claims have gone virtually unnoticed in the Western media, but now become one more evidence of the aggressive nature of China’s growing military stance. The Yellow Sea between the China Mainland and the Korean Peninsular is the northern part of the East China Sea, and U.S. surveillance is an essential part of the defense of South Korea including the 30,000 American troops stationed there as part of Washington’s commitment to its defense. .
It could be, of course, that the incident was only coincidental with Xi’s travel plans. Another possible explanation is that military “hawks” were intent on embarrassing Xi in his effort to exploit his visit to the U.S. to enhanced his prestige for his increasingly grab for power. There are reports in Chinese circles of growing friction between Xi and the People’s Liberation Army over the Chinese leader’s aggressive anti-corruption campaign. However accurate in identifying the ubiquitous corruption among the leadership as well as lower echelons of the Communist Party and government, it is also seen as a weapon in an intra-Party struggle. And Xi has extended the campaign to high members of the military where their operation of non-military enterprises has been a source of vast corruption.
To compound all these possible areas of friction, Xi has moved, according to Chinese sources, quite suddenly, to axe the military numbers. On Sept. 7 at a ceremony commemorating China’s participation in the victory in World War II, he announced that China would chop some 13% off Beijing’s 2.3 million in uniform. Xi’s move came suddenly with no consultation outside of the all-important Central Military Commission which like the other Party and state offices he heads.
Such a move was long contemplated along with a massive reorganization of old Soviet organizational patterns and allocation more resources to air and naval forces. But commentaries in the People’s Liberation Army daily, spokesman for the senior military, have warned that the move will be hard to implement. Finding new jobs for the cashiered officers and men will be all the more difficult given the downturn in the Chinese economy with a rapidly diminishing overall growth rate. One commentator acknowledged opposition to the cutback because “[S]ome units suffer from inertia and think everything is already great. Some are scared of hardships, blame everyone and everything but themselves … They shirk work and find ways of avoiding difficulty.”
China has seen protests by demobbed soldiers – the latest in June including veterans of China’s short border wars in 1969 with the then-Soviet Union and with Vietnam in 1979. Although unreported in the controlled press, some demonstrations were said to have taken place in front of the Central Military Commission August 1st Building in western Beijing. And although most military analysts agree the cutback was a part of a long overdue modernization, continued friction will test Xi’s control over the military at a time of aggressive strategic projections against Japan in the East China Sea and the building of a tier of new bases confronting Southeast Asian neighbors in the South China Sea
sws-09-23-15

Xi’s bluffing hand


Next week’s state visit of China’s No. 1 Xi Jinping looks to be all pomp and circumstance. There is little expectation that the long list of critical issues between Washington and Beijing will be addressed in any substantive way. And, in fact, the international Greek chorus which sings a baleful song of American decline will have a new chorus.
That’s despite, ironically, Xi’s own vulnerability. He desperately needs the increased prestige and illusion of gateopening in the face of his ambitious grab for Mao-like power in a domestic Chinese scene filled with growing problems. That Chinese economic miracle of the last two decades that brought a backward Soviet-style economy into worldwide prominence and leadership is sputtering. The overall growth has fallen rapidly and may well be at something like 5% or 6% annual instead of the double digits of the recent past, or the usually fictional statistics of the present claim of 7+%. That means China is longer producing the jobs necessary for satisfying a still growing but rapidly eroding cheap labor pool as a result of the now abandoned bitter one-child restrictions..
Rapid economic growth had become the only prop for the one Party regime. Xi now is in reality replacing it with a grab for the kind of personal power not seen in recent collegiate rule among the Party elders, reinstituting old measures of repression against any hint of feeble dissent. The continuing roller-coaster of the Shanghai stockmarket, while less a part of the economy than its models in Japan and the West with China’s top-down allocation of credit and capital, is a propaganda disaster. Xi and his team have thrown everything including kitchen sink promises of a move toward a consumer economy at the issue with no success. It suggests that, in a sense, the Party has created a Frankenstein, an enormous economy that it fears to turn over to market forces but one it can no longer plan for or control.
The traditional if more spectacle anti-corruption campaign, while revealing new and incredible corruption and malfeasance among the highest echelons of the Party and the start-owned behemoth monopolies, is actually aimed to squelch opposition within the Party. But a struggle continues, critical since it includes a former member of the ruling politburo and his following who ran the so-called security apparatus. [The Soviets learned long ago when you eliminate a secret police chief, the only way to eliminate the snake is to kill it, literally, at the head, and so far Xi has not done that.] Xi, even more than his immediate predecessors who like he did not have a military background such as early Chinese Communists, is stoking the upper military echelons with appointments. But in any internal crisis, he again like his predecessors, if worse comes to worse would be more than ever dependent on the People’s Liberation Army to save the regime from disintegration– and this time the military might not hand it back to Party apparatchiks.
China’s new role as a world power is also facing increasing challenges, many of its of their own making. Claims of a new alliance with Vladimir Putin’s Russia ballyhooed in Western mainstream media does not exist. For example, a decade-old attempt to tie Russian gas and oil to the Chinese economy, despite repeated announcements of its completion, still has not solved the pricing and pipeline funding. Contradictorily, on the eve of Xi’s arrival in the U.S., Putin has laid out a honey trap for the U.S. [speaking from Central Asia where the Russians and the Chinese engage in a contest for influence and raw materials], He suggests an American-Russian condominium – a return to its world superpower, on Moscow’s terms status of course. But it does expose the real relationship between Moscow and Beijing, that is, featuring the historical struggle for the depopulated several times zones of the old Russian empire in Siberia and the Far East.
China’s overseas showpiece deals, particularly in Africa but also in Asia, which were to demonstrate China’s new economic prowess, are under stress. Again ironically, China’s slower economic growth and thirst for raw material imports – along with dramatic explosion of raw material hoarding – is poisoning the swap deals of construction projects for oil and gas and other raw materials. China is still No. 1 trading partner for most of Southeast Asia, of course – and even seducing India into a raw materials for manufactured goods exchange with a huge Chinese balance of payments surplus. But there is growing concern throughout the region, including a tightening of Japanese, Australian and Indian and U.S. military cooperation, in the face of China’s claims and continued building of military bases on coral strips in the South China Sea.
The Obama Administration’s reaction to Xi’s vulnerability has been to offer negotiations on all issues with only rhetorical responses to Beijing’s increasingly aggressive posture. Hillary Clinton’s “pivot to Asia” has stalled midway as the Mideast cesspool deepens. There was apparently the usual bureaucratic dance within the Administration over Obama’s loud leaks of a threat of sanctions against the most grievous recent Chinese violations of cyrberwarfare and intellectual property theft. [Another Obama red line crossed?] But the most blatant recent currency manipulation in which Xi hoped to halt falling exports with even more monetary subsidy has not been challenged by imposing countermeasures. At a time when the whole of the international community sees Obama’s deal with Iran on the Tehran mullahs’ pursuit of atomic weapons as a retreat full of U.S. concessions, Xi is in effect being offered an opportunity to make a deal.
But whether he can and would do that with his own domestic constraints in his grab for absolute domestic control remains a big question with a likely bad answer from Washington’s point of view.
Sws-09-18-15

China’s shaky economy


China’s shaky economy
The Shanghai stock market is dipping again.
Three weeks ago, it fell by nearly a third in total value wiping out some $3 trillion. The cavalry arrived with Communist Party leaders throwing everything they had to stop the hemorrhaging.
But like so many other parts of the Chinese economy, the names are the same but the function of the Shanghai market is not what stock markets are to economies in the West and Japan. Like the rest of the miraculous development of the last two decades, the stock market has been built from top down. So rather than represent the accumulation of capital from private investors for the growth of companies, it really represents an indirect function of government credit – with a large group of gamblers [90 million or more than the membership of the Communist Party] along for the ride.
When some smart operators decided they knew how to manipulate the market, they tripped what would otherwise have been the crash earlier. Beijing’s Communist rulers dived in to shore it up. They had no choice because the market had become a showpiece whatever its real nature, and with growth dropping rapidly in the overall economy, its dive for propaganda purposes couldn’t be tolerated.
The rescue operation was extensive and intensive: Beijing pulled one-third of the stocks off the market. The central bank went into the market to buy. A state pension put funds into equities for the first time. Beijing told investors holding more than 50% of a company they couldn’t sell for six months. Brokerage firms were underpinned by the government banks to hold stock inventories off the market.
For a while that looked like it would save the day, although no one was sure what would happen when any of these “props” were removed. No one seems to know exactly why less than a month later, again, the market plunged knocking the pins out from under the rally the government had been able to create. Perhaps it was information leaked from government sources that the withdrawal of the extraordinary supports was under way.
One further consideration all along was what is left for the government to do if the slump continues. There’s been general agreement the present setup cannot continue indefinitely
Again, the significance of this new collapse may be less its economic effects than its political implications. If it proves true, as now seems the case, that the government cannot even by pulling out all stops, “save” the stock market, what, one may well ask, is the government going to be able to do to stop the general slowdown? That’s’ now the case. Furthermore, the speed of the decrease in total economic activity as represented by the gross domestic product [GDP] has been seen by some observers as less significant the rapid rate at which it has fallen. .
Dropping from the record double digit figures of the last two decades, the GDP rate of growth officially dropped to 7% in the first quarter. Some observers, using the government’s statistics which are more than a little suspect, believe the GDP dropped even more. When the government came up with the surprising figure of a 7.6 growth in the second quarter, it was called “unexpected” by some and a downright lie by others.
. Although at least one major investment counseling firms in the West has warned its clients to “China-proof” their portfolios, the majority of observers are still clinging to the notion that the Communist government has all the tools necessary to prevent “a hard landing” for the economy. Again, that’s despite the evidence already presented in the case of the Shanghai market, even though it occupies a less important role than would be assigned it by superficial observers making comparisons to New York, London, Frankfurt and Tokyo.
But the slowing of the Chinese economy and its demand for raw materials has already had an effect on the worldwide commodities market, contributing in part to the fall in oil and gas prices as well. One suspects that some of the more optimistic talk about the China markets is wishful thinking as much as anything else. The cutback in growth has already taken its toll of some speculators – in copper, for example – and has had an effect on such major raw materials exporters as Australia.
Unfortunately, the world cannot be “China-proof”. And some of the more optimistic souls in the Obama Administration had better be thinking hard about what happens if the Chinese economy continues to sour.
sws-07-27-15

Militarization of China


As the Chinese and the Americans sit down for the seventh of their annual two-day meeting [June 22-24], set up in 2009 to maintain bilateral cooperation despite growing differences, a major transformation of the Chinese regime is a new and worrying factor.
Secretary of State John Kerry and Treasury Secretary Jack Lew head the American delegation. The Chinese side is represented by State Councillor Yang Jiechi, a veteran diplomat and Kerry’s counterpart in Beijing, and a rising Communist Party star, Vice Premier Wang Yang, known as a major technocratic government reformer.
With growing criticism of the Obama Administration’s China strategy from the Congress, Daniel Russel, assistant secretary of state for East Asia and the Pacific, has said the U.S. agenda would include differences over the South China Sea, cyber security and human rights.
American-Chinese differences are growing in all these areas. A recent Beijing public statement on its construction of military-capable bases on shoals hundreds of miles south of Mainland China flatly rejected American and Southeast Asian countries’ protests. Massive cyber attacks within the last two weeks against the Office of Personnel Management are believed in professional IT quarters to be the work of the Chinese, whom the U.S. named in similar attacks last year. Washington will again bring up Beijing’s growing violations of human rights as Pres. Xi Jinping, now entering his third year continues to tighten the screws on China’s domestic scene.
Official Chinese documents are now calling publicly for a further integration of military strategic concepts in all infrastructure expansion and the direction of civilian enterprises.
This week’s conference is to prepare for Pres. Xi Jinping to make his first state visit to Washington. It becomes increasingly clear that when Pres. Obama welcomes his Chinese counterpart, a man with many titles, on his first state visit to Washington, if unsaid it will be as one only rarely mentioned, Chairman of the Central Military Commissions [CMC]. Given the growing trends in the People’s Republic, that may well be the most important in Xi’s official roster of names.
Xi comes, of course, after two years in office as Obama’s counterpart as President of China and with the full weight as the all important General Secretary of the country’s monopoly political organization, the Communist Party of China.
But it is the head of the CMC that overseas Chinese growing military force of 2,285,000 actives and a half million reservists, with an estimated total published and hidden annual and rising budget with a purchasing power equivalent to $145 billion.
The two commissions — one Party and one government with the same members — set the policies, strategies and perhaps tactics of Chinese growing military forces.
Their importance took on new meaning when on May 26 the State Council [China’s equivalent of a cabinet] issued for the first time its White Paper on China’s Military Strategy, calling for military integration into the civilian infrastructure. What apparently is intended, is along with the other signs of a return to the Maoist era with old rhetoric and new repression, a return to earlier days when the Communist Party and its People’s Liberation Army leadership were identical. .
Xi reportedly already relies [rather than career foreign ministry officials] on the Communist Party’s Central Leading Group on Foreign Affairs, containing many “princeling generals”, offspring of Party leaders who though not all soldiers have served as military officials, for day to day advice on foreign policy. There is speculation among China-watchers that all this has led over the past two years to such aggressive stances as Beijing’s announcement of an Air Defense Identification Zone over the East China Sea, planting oilrigs within Vietnam’s Exclusive Economic Zone and the construction of airstrips in the Spratly Islands off the Philippines and Vietnam.
If these moves are considered with a rapidly improving military technology, especially on the sea — including a call in the same white paper for undisclosed increases in China’s military reserves — the public statements from military figures in the controlled media calling for China’s adherence to the military’s “charismatic culture”, the specter of an increasingly militarized China becomes more than worrisome and must take first place in any American strategy to deal with “a rising China”.
sws-06-23-15

The Chinese Puzzle


A servile media has again misrepresented the important if unproductive Asian tour of Pres. Barack Hussein Obama, most importantly the promised engagement with China which failed to materialize.
The ballyhooed U.S.-China climate change agreement, appealing to the fashionable, signed between the U.S and China was much less than meets the eye. It committed America – until it gets to a Congress which will have a different sense – to a rigorous cutback in industrial carbon emissions to be achieved at the price of economic growth and jobs.

It couldn’t be more bogus. Beijing, by far the world’s greatest polluter and not only through carbon emissions but through poisoning of its arable land and most of its water, only formally signed on for something ambiguous down the road. Worse still, as Japanese and South Korean consumers have found – and those Walmart customers may one day learn too at their peril — it exports its poisons through cheaper processed foods.
Recent history is littered with the evidence of failures of the Chinese Communist adherence to international agreements it has signed. Ironically, many of them were pushed through international forums by Washington administrations, both Republican and Democrat, anxious to bring “a rising China” into the world family. For example, none of China’s promises have been fulfilled after the U.S. shoehorned it against considerable opposition into the World Trade Organization with all its benefits.

As previous administrations, most notably the two Bush II terms, Washington did not take on China’s manipulation of its currency and its subsidized exports which have disemboweled American manufacturing. That Chinese thrust had to be met at the same time U.S. industry was trying to cope with the digital revolution, with its enormous increases in productivity but an absence of low and medium-skilled job creation.

The sagging European economy and the slowest recovery from recession in American history bite into the Chinese economy as well, particularly its dependence on exports [and its growing debt burden which financed an overly ambitious infrastructure expansion]. President Xi Jinping’s answer to this growing economic dilemma is to screw down on the regime’s growing difficulties with its exposure to the internet’s erosion of the old Party information control while making an effort at economic reform.

Xi has encouraged talk that he is the new Mao with more than a hint that his repression of dissent would be as draconian. There is growing acknowledgement at home and abroad that the Chinese regime is headed into a crisis of the regime, perhaps an attenuated one, when the answers of the recent past will not be sufficient. That could well mean that Washington [and Tokyo and South Korea] strategists not only face an increasingly powerful Chinese military force but one being guided by an arrogant Party leadership in charge of an increasingly unstable behemoth.
Obama’s answer in Beijing to this new conundrum was hardly convincing. He signed one more agreement to open up Chinese military communication with the U.S. armed forces. It is another of a series signed over the years, for all of which Beijing initially signaled its intention to follow through on. But all have languished for continued stone-walling on any official information illuminating Chinese force structure, armaments development or strategic intent. The U.S, along with its allies, will have to continue to piece together what the massive increases in budgets for the Chinese military actually mean, and where Chinese theft of intellectual property and imitation of American, Russian and Japanese arms is taking its ability to wage war.

All of that is of great moment. The possibility of an aggressive Chinese military – often seemingly with mouths out of control of the Communist Party’s supposed tight rein – will remain. As long as China unlike any other great power, refuses to divulge any of the details of its military buildup, its counterparts are playing blind man’s buff with always the possibility of untoward incidents developing into major exchanges.

Compounding this lack of official interchange is what is happening on the Chinese domestic scene. A dramatically slowing economy now has fallen far short of what foreign and Chinese convention held as the minimal 8% annual growth in gross domestic product necessary to maintain internal stability. Plucked from the air by foreign analysts and the Chinese themselves, it was never clear that such a figure really had all that much magic. It relied on what was believed to be the need for jobs for a rapidly growing population. But now, China, even more than the industrial societies, in part the result of its inhuman and corrupt one-child policy, is facing a rapidly ageing population as well as a shortage of the abundant cheap workers which underlay the boom.
Rapid economic development had long since taken the place as the raison d’etre of the former Marxist-Leninist-Maoist dogmas which justified an authoritarian regime based on the political monopoly of the Communist Party And increasingly with the remarkable growth of the last three decades, it was the justification for growing class and regional inequalities. That included a pampered elite with incomes and luxuries denied all but the most publicized millionaires/billionaires in the West and Japan. One signal of the stress the regime is now under is the flight of leading members of the Communist elite, following their children in foreign universities – and their money — to foreign climes, not least North America.

Sec. of State Hillary Clinton’s much publicized “pivot” to East Asia from American entanglements in the Middle East was still voiced at a meeting of the Association of South East Asia where Obama proceeded after his Beijing visit. But to the increasingly nervous Southeast Asians – caught in the vice of their increasing commercial exchanges with the Chinese and their fear of growing Beijing imperialist designs on their territory and raw materials – Obama offered little comfort except more rhetoric. With a straitened American military, the transfer of U.S. power to the region has been slow if at all. The Japanese are rumored concerned that Obama’s former friend, Turkish Pres. Recep Tayyip Erdoğan’s refusal to permit use of the Turkish-American-NATO base at Enrcilik, has put a strain on the new carrier-based air war against ISIL. That, of course, turns out to be a renewed commitment of the U.S. in the Near East region. The Japanese have grumbled quietly because of the ISIL campaign demands, East Asia will be four months without a U.S. carrier homeported in Yokosuka. And the esoteric strategic arguments about aircraft carriers in a new era of warfare notwithstanding, their geopolitical psychological import is not to be disabused.

With a turbulent U.S. domestic political scene – one in which Obama has apparently decided to challenge the new Republican majorities in both Congressional houses rather than try for conciliation – China policy is probably going to be relegated to a backburner. That may give both sides a respite of benign neglect for U.S.-China relations. But it also hints that problems will not be addressed, at the risk that an explosive confrontation between Washington Beijing might prove inevitable.
sws-11-16-14

The [Chinese] emperor has no clothes


The shudder that relatively minor bad news from China sent through world markets last week was a warning that the halcyon days of Beijing’s economy are over. Indeed, reluctantly because of self-interest and wishful thinking, a universal consensus finally is emerging that the Chinese economy is in deep trouble, a crisis that could perhaps overturn the regime itself.

The cardinal indicator is that the Chinese economy is slowing down. How much, how fast, which sectors, is all open to speculation given the notorious unreliability of Beijing statistics. But certainly we long ago dipped below that 8% minimal annual gross national product growth rate which once was accepted inside and outside the Middle Kingdom as the requirement for political stability.

In a sense, it was inevitable: perhaps the world has no history of a regional economy as large as China’s growing at its phenomenally high rate over the past two decades. But, then, too, it has been obvious to all but the most optimistic that huge aberrations were being built into a wanting modernization process that would eventually haunt the leadership. That’s where we are now.

There is unusual agreement, again, among Chinese and foreign critics of what is wrong and even accord on remedies for amelioration. Communist Party Chairman, chief executive, and chief of state Xi Jinping and to a lesser degree Prime Minister Li Kegiang, some 18 months in office, are saying all the right things. Xi, unlike his predecessors, even manages to project charm to sell what will be under the best circumstances extremely difficult structural reforms. The new leadership has come down hard on corruption which is not only endemic, but has taken on growing economic aspects with everything from undermining manufacturing quality to facilitating a huge capital flight. It acknowledges that pollution, paralyzing major cities for days and increasingly jeopardizing children’s health, is an economic hazard.

But however clear a new formula would have to be found, the task is daunting. Such a strategy would have to replace the two-pronged drive put into place once the Chinese Communists abandoned Marxist-Leninist-Maoism in all but name. Mao-style autarky was trashed for an enthusiastic welcoming of foreign investment and transfer of technology to build export markets based primarily on abundant cheap labor. But at the same time, Beijing continued the Soviet tradition of enormous expansion of the infrastructure, well beyond contemporary or projected demand.

This Weltanschauung now has eroded dramatically.

The worldwide economic downturn ended an unlimited expansion of markets for Chinese exports. These manufactures had become part of a vast, new production chain in which international companies used Chinese assembly to produce products for sale to the U.S. and the rest of the industrial world at bargain prices. While these operations introduced limited manufacturing, through manipulation of currency and subsidies Beijing was in fact subsidizing foreign buyers. One look at the retail prices of products at an American retailer indicates that some dissident Chinese economists may well be right arguing that a capital-short country was exporting capital to wealthier nations.

Furthermore, Chinese razor thin margins have been jeopardized by rising costs, including growing fuel imports and a flattening out of the labor supply due to the regime’s attempts to stem population growth. For these reasons China already has lost many of the lowest end manufactures to other low-wage competitors; infants garments, for example, to Bangla Desh. There is even some movement because of technological improvements of off-shored manufacturing back to the industrial countries. For example, with America’s shale revolution reducing the price of domestic natural gas to a third of delivered prices of LNG in East Asia, petrochemicals and their plastic products are returning.

At the same time, China’s vast infrastructure expansion is falling victim to a growing credit crunch. Having sailed through the financial crisis with an unprecedented “stimulus” package of $586 billion in November 2008, Beijing created overcapacity and overinvestment. At the same time, local government’s expansion was based on sales of diminishing farmland for industrial and infrastructure development and credit from regional bankers.

The net result of all this is debt that even the government has found difficult to estimate and a fragile financial structure at every level of government. Perhaps more important, it has resulted in an increasingly onerous situation for private developers who carry a disproportionate weight in the overall growth. With stop and go credit policies, intrepid bureaucrats have created new shadow credit organizations beyond the scope of government monetary and fiscal policy.

The generally accepted recipe for solving these problems is to move the economy away from its concentration on investment and exports toward greater consumption and financial liberalization. But, in fact, recent trends have been in the opposite direction, as the government faced dismantling a system which had profited small urban elite enormously with a superficial appearance of modernization. The strongest resistance has come from huge government corporate entities and the welter of smaller SOEs [state owned enterprises] in the hands of regional and local Party apparatchiks. Their influence inside the ruling Communist Party gives them call on capital, even when as often happens, to entities either deficit or bankrupt.

What gave the markets the shivers last week was a statement from Li that a series of defaults were inevitable as the government tries to rationalize. A default by Haixin Steel, a relatively small operation but with ties to coal and iron ore companies was what gave rise to international concern. It also reflects what industry sources believe is a growing collapse with half of the country’s steel mills losing money. A week earlier China experienced its first bond default when Chaori Solar, a small privately owned solar panel maker, was unable to meet interest on Rmb1bn ($163 million) of bonds sold only two years ago.

In the past, the government has always picked up defaulting companies. If that policy is now to be abandoned, it is unclear just how big the debacle will be and whether it could lead to panic. Already world copper and iron prices fell sharply under the pressure of Chinese speculators retreating from their bets on a continued high level of metals production.

To remedy these problems, Xi’s highly publicized reforms, however much pushed by the leadership, are running into the often hidden outcome of past excesses. For example, not only does the attempt to moderate the “one child” policy appear as a lame effort to resolve an already warped sex ratio in the society – female fetus abortions having produced a vast excess of males – but a huge, corrupt bureaucracy created to enforce the strategy is blocking real changes. Furthermore, such side issues as hundreds of thousands of “illegal” births have produced a sizeable population which cannot claim identity from the still deeply held conviction of Party leaders they must control any dissidence through strict monitoring. A similar problem exists for the hundreds of thousands of part-time workers in all the major metropolitan centers, brought in as “cheap labor”, but refused urban citizenship and a right to limited social welfare benefits. The security proponents are allied with local governments in this instance against any “reform” because of the additional costs it would heap on already overburdened local government and the dismantling of authoritarian control of every individual.

While the system does have the support of the Party apparatchiks, a highly touted new urban middle class does not exist. Best estimates are an upper 1% of households — 2.1 million out of about 530 million households — owns 40-50% of the country’s $10.5 trillion worth of real estate and financial assets. That these ultra-rich – many at the Party’s highest echelons – are moving money into foreign real estate and other investments is widely reported. Should they consider moving 30% of their assets abroad, which is a figure rumored in Chinese circles, the much celebrated Chinese monetary reserves of $3 trillion in dollars would be inconsequential in stemming the tide.

This prelude to a cataclysmic readjustment of the Chinese economy is arriving at a time when Western economists and businessmen have had to abandon a long-cherished hope that continued rapid Chinese [and Indian] development would prop up the world economy. But their disillusionment on this aspect is likely to pale into insignificance as the effects of the Chinese slowdown impacts further on commodity producers in Africa, Latin America and Australia.

Beijing leadership’s quandary is that the struggle to refashion the Chinese economy with further liberal economics comes up against the determined effort of the CCP to maintain its power monopoly which forbids just that. For example, the effort to turn the yuan into an international currency requires it become convertible. That would not only jeopardize current export subsidies but would further encourage the flight of capital, largely a function of the corruption in the Party, often at its highest levels. .

That produces an explosive environment where almost scenario is arguable.

sws-03-16-14

 

 

 

 

 

In a world he never intended [to make]


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MicrosoftInternetExplorer4

 

The Obama Administration’s foreign policy begins to look like that tightly wound ball of crocheting thread which the kitten has been playing with for several hours and is now finally completely unraveling. How innocent the kitty is may be a question in the eye of the beholder. But the disarray is so vast as to be unfathomable:

 

Iran

 

The agreement not to reach agreement on a six-months pact for adjusting U.S. and Western interests with Iran, which Pres. Obama said only had a 50-50 chance, is falling apart even before it officially begins. Sources from inside the never very effective UN International Atomic Energy Commission say the agreement cannot be policed or enforced. The $10 billion in additional oil exports it permts the Mullahs in Iran will help bail them out of crisis economic situation while they continue to hurl threats at the world and call for an end to all sanctions. The Administration after giving Tehran relief by not instituting penalties against new violations of the existing sanctions regime, has now reserved itself. But Pres. Obama opposes bipartisan Senate and House members pushing legislation for new sanctions if and when the short-term agreement collapses. All sides admit/claim that Iran’s search for enriched uranium and nuclear weapons and a delivery system is going forward without hindrance during the truce period.

 

Israel

 

Ignoring the fact Secretary John  Kerry’s negotiations mandate is only dealing with one of the three Palestinian elements – the PLO on the West Bank, Gaza and Jordan – new obstacles have arisen. Kerry has thrown over bitterly and long time negotiated U.S.-Israeli guidelines for its security if a Palestinian state comes into being. So he has inadvertently manufactured a new crisis over Israel’s continued presence in the JordanValley. With growing threats from Iran-armed officially designated terrorists, Hezbollah in the Lebanon north and Hamas in the Gaza south, armed by Iran, no Israeli government is going to accede to any major concessions on their eastern flank with an always fragile Jordan now facing new difficulties with hundreds of thousands of Syrian refugees.

 

Syria

 

Washington has had to abandon the dribble of aid to the “moderate” opposition in Syria fighting for an overthrow of the Assad regime because of a takeover of the motley anti-Assad forces by jihadists. A new and even more violent jihad group has supplanted earlier groups linked to Al Qaeda. There are no prospects for the proposed U.S.-Soviet sponsored conference to end the civil war. Not only has the mechanics for disarming Assad’s chemical weapons collapsed, but the bloody dictator – perhaps now in the hands of Iran’s Revolutionary Guard – is currently carrying out a bloody air war against opposition elements in the second city of Aleppo. In part because of Obama’s maybe-in, maybe-out Syrian initiatives, the Assad government has a new lease on life, But this more and more desperate use of air power and heavy weaponry against poorly armed opposition forces and civilians not only continues the humanitarian crisis, but threatens to spread the war to its neighbors, including Israel.

 

Saudis and Gulf States

 

:The U.S. has lost all credibility with its longtime allies, the Saudis, and the Gulf sheikhdoms, because of its failure to formulate an effective Syrian policy and its hostility to the new military-sponsored government in Egypt [below]. Reports of Saudi overtures to both the Soviets and Iran are probably propaganda, but the Saudis – always pragmatic – are now apparently thinking of trying to compromise their differences with the Shia mullahs given the seemingly inevitable approach of a nuclear-capable Tehran. Intelligence cooperation between the Israelis and the Saudis, sharing their mutual hostility to Washington’s flirtation with Tehran, are probably exaggerated. All this is complicated for the vulnerability of the Saudis [and the rest of OPEC] to the shale revolution in the U.S. which is turning North America into major net exporter of fossil fuels and breaking the hold over the longer term of Mideast oil. China’s appetite for increasing imports of energy are also feeding into a deteriorating presence of the U.S. in the region, ironically despite the fact that the President is surrounded by “Arabists” long sympathetic to anti-Israel machinations of the radical Arabs.

 

Egypt

 

Washington’s alliance with Cairo [which along with the Egyptians’ peace treaty with the Israel and the alliance with Jerusalem] has been the cornerstone of U.S. middle east policy for almost four decades. It is now in tatters. The Obama Administration’s refusal to recognize the general popularity of the military coup which overthrew a growing oppression of the Islamicist regime of the Muslim Brotherhood has alienated the Egyptian military. And for the first time since former Pres. Anwar Sadat threw the Soviets out of the Mideast, Cairo is letting the Russian nose back under the tent. Moscow probably cannot fulfill its promised deliveries of arms to Cairo – nor are the Saudis and the Gulf sheikhdoms now footing Egypt’s deficits likely to permit it – but it has handed Russian President Vladimir Putin another bit of useful propaganda. The erosion of U.S. relations wit Egypt, by far the most populous Arab state and the longtime center of Sunni culture, is a major disaster for peace and stability in the area.

 

Russia.

 

With his tacit ally, Iran, Russian Pres. Vladimir Putin has become the arbiter of the Syrian situation, continuing to support the Assad regime against the jihadist-dominated opposition which Washington now fears to support. By going to the aid of Pres.Viktor Yanukovych with emergency financing and discounted natural gas prices, Putin has forced the Ukrainian regime to curb its growing ties with the European Community. The hostility between the nationalist western Ukraine and the Russian-speaking eastern rust-belt threatens the unity of a very fragile new state. But Putin can, at least for the moment, quietly trumpet it as part of a growing successful plan to reassemble the old “Soviet republics” into a new Moscow sphere of influence and customs union resembling the old Communist state. Despite the refusal of the German, British and American heads of state to attend, Putin has lavished some $70 billion – and still counting – on the February Winter Olympics where he hopes to crown his and Russia’s return to superpower status. Obama’s concessions to Moscow on missile defense – embarrassing Polish and Czech allies – and other attempts at concessions for a modus operandi with Putin’s Moscow have fallen disastrously short. And while Putin’s ambitions are likely to be short-lived, he has the capacity to add additional muddle to U.S, policies in the Mideast, Europe and Asia.

 

China

 

While Beijing’s dependence on exports and massive overexpansion of its capital plant and infrastructure has had to be reigned in, U.S. economic policy still refuses to confront the enormous and increasing trade deficit with China which threatens the U.S. dollar. Luckily, Beijing does not have any place to go with its foreign exchange hoard – Sterling long ago was defrocked as a reserve currency, the Euro is in an attenuated crisis, and the Japanese refuse to permit the yen to become a reserve currency. But the Obama Administration refuses to indict the Chinese for currency manipulation which has gutted much of U.S. manufacturing and permitted the Chinese to have pretensions for their own internationalization of the yuan and to make significant if small overseas investments. Increasingly the U.S. is faced with a dilemma of either permitting semi-government Chinese companies to acquire American assets – with their record of mismanagement and corruption – or inhibit the play of market forces in the U.S. economy. The “pivot” to East Asia so portentously announced by former Sec. of State Hillary Clinton – despite all denials an effort to meet an increasing aggressive “rising” China – is being inhibited by the continuing pull of the Mideast on military resources and a lack of clarity on the U.S. strategy in Asia. In riposte, the Chinese are proceeding with more and more territorial claims against their neighbors in the East and SouthChinaSeas further incurring demands on American military capacity.

 

Japan

 

The Obama Administration has failed to enthusiastically grasp the popularity and strategic clarity of the Abe Administration. In the case of the contested Senkakus Islands, it has taken an internally contradictory stand: it recognizes Japanese longtime occupation, it has repeatedly said the little, uninhabited rocky outcroppings which may or may not sit above fossil fuel deposits, are covered by the U.S. Mutual Defense Treaty. But the masters of ambiguity at Foggy Bottom maintain Washington does not take sides in the dispute and does not recognize Japanese sovereignty. There must be some limit even to diplomatic “modalities”! Having initiated the Trans Pacific Partnership, an initiative to create a vast new common market – excluding China but including Japan – the Obama Administration has been allowed the project to dawdle. With Canada and Mexico having joined in, the issues are enormous for all the partners, especially for traditionally protectionist Japan with Abe staking his political life on their negotiating success. Yet it has not engaged the President in more than an occasional passing reference. And, probably correctly, it is no secret that Abe has maintained a stiff upper lip in the face of relatively little attention from his ally, and, in fact, political embarrassment with a growing suspicion in Tokyo’s elite circles that the President’s coterie is incompetent.

 

Korea

 

Seoul, succumbing to a campaign of seduction by Beijing, has steeped itself in the old arguments of the bitter half century of Japanese Occupation. Defense Sec. Chuck Hagel, on his recent tour, shocked Tokyo and discomfited Seoul when he indicated he would be trying to mediate the growing Tokyo-Beijing tension, but then publicly refused to play conciliator to the two most important bilateral allies in the region, Japan and Korea. The Obama Administration seems to be completely oblivious to the fact that an accomodation between Japan and South Korea is the sine qua non of any multinational alliance in Northeast and Southeast Asia to meet the growing aggressive feints of the Chinese regime.

 

Meanwhile, coordination in a joint effort to anticipate the next unpredictable events in North Korea is less than adequate among the three allies, the U.S., Japan and South Korea. Washington’s continued reliance on Chinese intervention seems to be the weakest reed with the recent purges in Pyongyang, apparently, in part aimed at elements seeking to take Chinese advice and move toward liberalization of the economy. The current South Korean administration, with few illusions about North Vietnam, is nevertheless not in synchronization with Washington. Even military strategy, with its ultimate goal the further reduction in American forces but maintaining the nuclear shield is not being given its due priority. The conundrum remains of a North Korea, with the example of Qadaffi’s Libya before them and its profitable technical collaboration with other rogue states such as Iran, which is most unlikely ultimately to abandon its nuclear weapons. The Allies’ alternative is to seek regime change. But fear of the chaos of a post-Kim North Korea is preventing the formulation of alternative strategies to Pyongyang’s continued blackmail for additional aid to keep a starving if militarily advanced economy from collapsing.

 

India

 

Just as its predecessor Republican administrations, the Obama team has had illusions about the prospects of an alliance with New Delhi. India’s dreams of hegemony in the Indian Ocean, its largely continued reliance on Russian weapons, and the predisposition of its professional foreign service corps for a close relationship with Moscow, always defeat any American effort at closer relations. With the Indian economy still hidebound by its inheritance from its socialist and colonial past, there are dwindling prospects of extensive foreign investment and transfer of technology to accomplish the kind of economic superapid progress China has made in the past two decades.

 

The blowup over the arrest and indictment of a member of the Indian New York City consulate-general for alleged maltreatment of an employee seems a legitimate action of the American criminal justice system. But it does seem that the State Dept. with its inordinate pride in its diplomatic traditions might have handled the problem more discreetly. The degree to which the episode has been exaggerated and exploited in New Delhi suggests the underlying faultlines which continue to divide the U.S.-India relationship. The Obama Administration appears to have only deepened them.

 

It was, of course, unavoidable that the immense and complicated structure created since 1948 with the central theme its effort to fend off Communist aggression, would have had to be modified and reorganized after the post-1990 implosion of the Soviet Union. But afterfive years of the Obama Administration, it is caught in the toils of its leftwing participants’ fight against the largely post-World War II U.S. foreign policy. It has only contributed to further confusion. It remains to be seen if in three years, another administration in Washington, whether Republican or Democratic can rescue the still necessary role of American leadership in the world.

 

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Ghosts of East Asia


          

There is an eerie feeling of déjà vu about the drama in the East China Sea just now.

Again an authoritarian government with a rapidly expanding politicized military is making more and more aggressive noises, in large part in pursuit of its voracious appetite for energy. The U.S., hegemonic power in the Western Pacific since the beginning of the 20th century, is being challenged. Washington again follows a zigzagging policy, all the while protecting freedom of the seas – even for its adversaries.

It was after all imposition of the American oil embargo on Japan in the summer of 1941 which was the final tripwire leading to Tokyo’s attack on Pearl Harbor. U.S. Ambassador Joseph Grew’s reports of rumors of a surprise attack were discounted. When it came, of course, the U.S. — despite an overwhelming majority opposition until then against a vocal minority adroitly headed by Pres. Franklin Delano Roosevelt — plunged into a catastrophic worldwide conflict. The U.S. saved the world from unprecedented organized bestiality, ultimately winning against initial odds.

Like all historical comparisons, this one is full of holes.

Still, a search for possible/probable oil and gas deposits is the main incentive for Beijing’s snowballing claims on its aquatic periphery. UN specialized agencies estimate China’s energy consumption by 2035 will grow by 50% to 1.8 times the United States’ [now at about one-fifth of world consumption]. That estimate may be exaggerated, considering China’s declining economic activity after two decades of unprecedented growth.

Nevertheless, much of a probable gigantic increase – given its already 1.3 billion people, four times the American population – will have to be imported. That’s despite exploitation of China’s large if poor coal reserves, limited possibilities for China from the U.S.’ shale revolution because of water shortages, exploitation of Tibetan rivers’ hydro potential despite endangering flow to most of South Asia, and significant solar and wind efforts largely based on American technology..

A solution to China’s problems could come from Russia’s vast reserves in Siberia, old Chinese claims there temporarily muted by Beijing. But despite frequent announcements of impending new agreements, China’s conversation with Russian autocrat Vladimir Putin, has channeled the old George Bernard Shaw gibe at Lady Astor, “Your profession has been established, Madame, it’s the price we are discussing.”  Ras’ Putin’s energy potential is handicapped with high costs, insufficient reinvestment in infrastructure and foreign investors wary after partial expropriation of their East Asian Sakhalin finds after they brought on production at huge cost.

Moscow’s industrial strategy is so muddled now that China has just made a deal to import Russian crude through a new pipeline to Central Asian producers. Another new Chinese pipeline to bring Burmese [and Mideast] crude, skirting the Malacca Straits chokepoint, to remote southwest China is threatened with a flare-up of long summering northern Burma Kachin revolt.

In other words, China’s energy future is precarious at best.

True, Chinese Communist leadership tries to use jingoistic appeals to its long suffering 200 year history of Western and particularly bloody Japanese aggression to justify claims on the farthest — albeit brief – historical reaches of imperial China. But nationalism, for all its notoriety – from the May 4th [1919] Movement of young intellectuals demanding modernization to Sun Yat Sen’s Republican campaign against the last “foreign” [Ch’ing or Manchu] imperial dynasty — is limited to a Westernized elite. It is not the force that for a millennium brought near total destruction to warring European nation states. Like the Indians, the Chinese despite the contemporary explosion of communication live in a parochial culture largely baring comparisons outside their own vast spectrum of language, ethnicities and race.

Bottom line: China’s new claims on virtually all the seas around it are largely economically motivated. But their drive to become a blue water naval power to advance those claims not only challenges their neighbors but inevitably the U.S.

For despite the Obama Administration’s aspirations for “leading from behind”, it’s the U.S. Navy which guarantees international freedom of the seas with America’s vast military expenditures, larger than the combined military budgets of its leading allies and contenders. The irony, and one about which Beijing has no illusions, is that it is Washington which insures China’s growing lifeline to its aggressive grabs at Mideast, African and Latin American oil. Even if China follows Japan’s successful search for modernization – as it always does – to go for “fire ice”, the vast methane hydrate deposits prominent in East Asian deep waters, it needs a claim. That’s what it is now staking.

This Chinese pursuit of more and more extravagant boundaries – even to the point of damaging its short-term strategies such as cultivating anti-Japanese, anti-U.S. feeling in South Korea to prevent the consolidation of “an Asian NATO” – may be as subtle as some believe. That is, by making outrageous demands, then backing off, Beijing ends up exploiting well-known American impatience and the nervousness of the Japanese and smaller Southeast Asian neighbors. Or, more likely to some observers, these new thrusts represent a less studied Chinese strategy than they do a struggle over the loosening hold of Communist civilians over its traditional Siamese twin, the People’s Liberation Army.

Either way, the Obama Administration – just as the Roosevelt Administration in the late 30s – is giving off mixed signals.

It was Sec. of State Hillary Clinton who in 2012.ostentatiously launched the Obama Administration’s “pivot to Asia”: in her article “America’s Pacific Century” in the flashy Foreign Policy. Not that most American international affairs wonks had an argument against the general thesis: developing Asia would increasingly change the world balance of power and Washington ought to shake some of the dust of the Middle East and pitch toward the unknown role a renascent China seemed more than eager to play.

But some of us wondered at the time if the Mideast curtain would be so easily closed, and whether Washington wasn’t underestimating the Chinese challenge. Nor was it clear how the U.S. Navy was to honor its enlarged task with numbers of ships at a pre-World War I level. Granted, increased technology – one has only to look at the drone revolution – compensates for tonnage in any new strategic environment. But that marvelous seagoing monster the USS George Washington neither can be in two places at one time nor is there no limit to its projection of power.

That can only mean a dubious worldwide strategic vacuum entails.

Alas! Not only did that Mideast tarbaby’s sticky hold turn out to be minimized  but a new Chinese-Japanese dispute over rocky atolls between them – coming out of nowhere on the Chinese side – has befuddled Washington. The Obama presidency has said the U.S. recognizes their longtime Japanese occupation. It has no alternative: in the 1971 Washington-Tokyo agreement returning Okinawa to Japan, an accompanying map includes the rocks along with islands south of that important East Asian American base. This chain, along with the Japanese archipelago itself, and Taiwan is the island barrier the Chinese naval power must finesse to reach trans-Pacific significance.

Secretary of Defense Chuck Hagel has just reiterated the proposition that the American-Japan Mutual Defense Treaty, the keystone of American strategy in East Asia since the 1950s, covers these islets. But at the same time, Foggy Bottom spokesmen keep repeating the inanity Washington does not recognize Japanese sovereignty.

When China announced its most recent seaside ploy, most of the territory between China and Japan and South Korea incorporated into its “air defense zone”, the Obama Administration, uncharacteristically, sent unarmed B-52s zooming through it as an in-your-face denial of China’s claims. But then it promptly turned around and first suggested, then ordered American airlines flying through the area to signal Beijing prior to transiting. Thus, in effect, Washington recognized Beijing’s claim. Furthermore, it came just hours after Japan’s Prime Minister Shinzo Abe had ordered three Japanese airlines to withdraw their earlier acceptance of just such a procedure. There is a hint that Washington didn’t even tell Abe, our principal Asian ally, the turnabout was coming.

Beijing’s game is a dangerous one. Having U.S., Japanese and Chinese military aircraft in more than usual juxtaposition in a relative small area, even up in the air and naval craft e also involved, is scary. Chinese communications, much of it built on stolen American intellectual property, are probably better now than they were in the 2001 Hainan incident. Then a cowboy Chinese fighter pilot killed himself when he scraped an unarmed American surveillance plane over international waters. Circumstantial evidence indicated Beijing wasn’t running the show, that the locals were out of control, and the foreign ministry was ill informed. A rather naïve retired admiral, the U.S. ambassador, told newsmen he couldn’t understand why his old friends in the Chinese military weren’t returning his calls. The Chinese saved face by forcing the U.S. plane down, then returning its crew — and the plane, literally in pieces. But it was not an attractive template for the kind of international disputes which could now erupt at any moment.

The rest of Asia is now holdings its breath, waiting for an episode or for the Chinese to back off, now that Obama has made major concessions. Hopefully, and there are plenty of signs, U.S. military and intelligence collaboration, especially with Japan but increasingly, again, with old Southeast Asia allies, is growing in view of the Chinese threat. It’s apparently without much White House input, perhaps luckily.

And, yeah! everyone can take reassurance from the dispatch of Vice Pres. Uncle Joe Biden on a swing through the area.

sws-12-01-13

Will China make it?


Despite the ballyhoo, there is little prospect significant reforms will emerge from the current upper echelon Chinese Communist Party meeting.

That’s despite virtually all foreign observers and most Chinese experts agreeing major changes are absolutely necessary to continue the past three decades’ fantastic economic progress.

China has now reached blocking obstacles, in part created by its very success. If those are not overcome, the economy could freeze up with half its population at near subsistence. Or it could face collapse of the ruling Communist Party regime. That possibility has been suggested publicly by former Pres. Hu Jintao and the current Pres. Xi Jinping.

If drastic reform is not forthcoming for a variety of reasons – not least the difficulty of the issues — it is bad news not only for China but for the rest of the world. For when the Chinese left Communist orthodoxy, it rapidly became part of the world economy. Maximum Leader Deng Hsiaoping philosophized the color of the cat was irrelevant as long as it caught mice. So in 1978 Party meeting, similar to this one, he plunged into opening to foreign investment with its priceless accompanying technology and foreign markets. That invitation to the world resulted in unleashing what all who were acquainted with them knew was innate Chinese entrepreneurial talent.

Unlike the 1990 implosion of an autarchic Soviet Union, a China breakdown would reach into every facet of world economy, for example, even American kitchens. I shudder each time I pass Chinese frozen food-laden counters in my local big box outlet. It is unlikely their production could have escaped China’s growing omnipresent air, water and chemical pollution. Hardly a week goes by without a major poisoning scandal reported even in China’s controlled media. But neither an earlier episode of imported contaminated dog food nor the recent disclosure of 600 dogs killed by poisonous Chinese “treats” has awakened the normally overactive Obama Administration’s regulatory appetite. It is only a matter of time until a major disaster occurs in the U.S. with the kind of food handling prevalent in China. Examples reach bizarre limits: waste cooking oil salvaged from gutters repackaged and sold to unsuspecting cooks.

It’s this corruption in all its 57 varieties heading the list of China’s problems. Repeated anti-corruption campaigns have been unsuccessful in making a dent. That’s because, too often, those nailed is a result of Party infighting while others with more influence escape unscathed. And it reaches the topmost levels: former Prime Minister Wen Jiabao was unmasked by a New York Times expose – undoubtedly sourced from his political enemies – as head of a huge family fortune.

The threat corruption poses for the Party was dramatized in the continuing saga of Bo Xilai, former Communist boss in the huge [30 million] southwest federal city of Chungking. It moved in stages from the murder of a British businessman and intelligence agent, to the failed attempt of Bo’s police chief to defect to the U.S., to Mrs. Bo’s conviction for murder of her business partner and lover. As the son of a famous Civil War revolutionary figure, a “princeling”, on his way up to a major national role, Bo’s conviction for a whole police blotter of crimes tore into the Party’s bowels. Not the least ominous was Bo’s close association with China’s secret police chief, now removed but probably still an intra-Party player.

But whatever their other differences in their search for “reform”, virtually all leading Party figures reject the notion of ending the Communist Party power monopoly. In fact, Pres. Xi Jinping, now a year in the catbird’s seat as Party general secretary, chief of state and chairman of the all powerful Central Military Commissions [Party and State], has made enough noises about the beauties of Maoism to suspect he may want to return to its more rigid suppression..

Growing dissident episodes have fed this Party nostalgia for a Maoist crackdown. In mid-October a jeep filled with Uighurs, a Turkic people, once the majority in Singkiang, China’s huge western Central Asian province, escaped surveillance. They crashed and burned before the giant Mao painting on Tien An Men square, scene of the 1989 government massacre of students and workers. The provincial Party chieftain, conducting a decades-old campaign against a low-level insurgency fed by Central Asian expatriates, was immediately cashiered. Whether the rebels have ties to worldwide Muslim jihadists as Beijing claims, those relations are developing as bitterness over the effects of the Chinese Han in-migration.

Uighur [and continuing Tibetan] opposition to Chinese rule are less important that Beijing’s dilemma presented by its exploitation of the digital revolution for economic development and its use by social networks undermining Party control. A staggering ­­­­two million “internet opinion analysts” censor forbidden materials on networks like the semi-official Sina Weibo, with more than 500 million registered users  posting 100 million messages daily. But when railway officials tried to bury derailed cars after a 2011 major accident, digital telephone pictures revealed the attempted literal cover-up. Their exposure led to a death sentence, later reprieved, for the minister and wiping out the ministry.

Bloggers are routinely exposing growing local civil unrest, often involving attacks on police. Beijing has stopped listing the number of incidences because of their increasing frequency. These often involve the expropriation of land in private use, the only fallback highly leveraged local governments have for financing both legitimate government and Party corruption.

Regime strategy sees solving poverty through continued urbanization, absorbing another 300 million of the half of China’s 1.3 billion still rural dwellers. But it has not been able to resolve overburdened city governments opposition to the hokou problem, which is a legal transfer of the migrants’ village registration. To do so, hardliners argue, would remove an important control. That means one sixth of China’s population, mostly part-time workers, living in the cities are treated as illegals and denied access, for example, to educational opportunities.

Underlying all this is the dropping rate of economic growth. An 8% annual increase in gross domestic product, conventionally considered the minimum to maintain political stability, has been broached – how much often concocted Chinese statistics do not really reveal. In fact, rapid growth may no longer be the panacea, a concept the Party leaders adopted after abandoning Marxist-Leninism-Maoism in all but name. But unlike the immediate post-Mao period, there is no single voice as strong as Deng’s to push through revolutionarychanges, even were they as relatively simple as those which Mao’s old enemy chose

In addition a nebulous but growing debt crisis has vitiated the growth formula of massive infrastructure expansion and expanding exports. China tossed more than half a trillion dollars into the economy to successfully escape the worst effects of the worldwide 2007-08 financial crisis. It cannot repeat that for fear of inflation, the death knell historically of all Chinese dynasties. Chinese banks have, meanwhile, built a whole world of “shadow banking”, dodges to escape the regulators and set aside debt of unknown magnitude. Similarly, the Central Bank is now trying to fathom indebtedness of local governments. Economists have offered estimates ranging from $2.46 trillion to $4.92 trillion, 30% to 60% of gross domestic product.

But the list of problems goes on:

  • China’s population is ageing even faster than its northeast Asian neighbors, estimated to trim 3.25% from annual growth between 2012 and 2030,
  • Because of infanticide due to China’s one-child policy, it faces a growing gender imbalance which the government estimates will mean 24 million men will not find wives by 2020.
  •  Relics of its Soviet era, China’s 144,700 State Owned Enterprises [SOEs], soak up 85% of total credit but produce less than half its industrial profit, most of that concentrated in  a half dozen highly successful oil, metals and electronic monopolies.
  • There are increasing signs China has a housing bubble, vast numbers of unsold new building – including whole uninhabited “ghost cities” — created by easy credit, top-down planning and traditional faith in real property.
  • Assemblies of foreign components with what was cheap labor along with lower quality exports now face stiff competition from low-wage producers in Southeast Asia, and, potentially, India.
  • Growing complaints [and disinvestment in banking] by foreigners against government xenophobia, unfair domestic competition, and violation of intellectual property rights are taking some of the shine off direct foreign investment to exploit those legendary huge China domestic markets..

Hanging over all this is Chinese growing – and largely opaque – expansion of its military machine accompanied by dangerous aggressive public statements by high placed officers matched by claims and feints on territorial claims in the East and South China Seas. Incessant public statements glorifying Party control of the military lead to questions. In two previous government breakdowns brought on by Mao’s ruinous policy adventures – the Great Leap Forward [1958] and The Great Cultural Revolution [1966-76] – the military salvaged the regime from chaos but returned control to Party civilians. In a new failure of control, would a more rambunctious and technocratic military hand back the reins of power?

For all these reasons none of these questions are likely to be answered after this week’s secret deliberations.

Alexis de Tocqueville said it succinctly:” The most dangerous moment for a bad government is when it begins to reform.”

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How do you say “schmooze” in Chinese?


There was less than met the eye at the two-day summit of China’s Xi  and Pres. Barack Obama.Neither party was in a position to tackle the growing list plaguing the relationship between the superpower and the superpower-wannabe. That might or might not have been a product of their particular personal abilities – and the much too often media true- romance about relations among major world figures. It is a question better left to future historians.

But a two-day schmooze session was about all the leaders of two mighty world powers could hope for. Given their miserable overflowing in-boxes back at homeoffice, it was to be welcomed by both leaders.

Pres. Barack Obama’s administration has turned premature lame duck – even before midterm Congressional elections next year. They hold, at least for the moment, little promise for his Democrats to either retake the House where the purse strings abide but even threaten the fragile Democratic leftwing-nonentity Senate alliance.

Obama came to Sunnylands –  how appropriate for a supposedly serious geopolitical conclave vacuous to its core  – bloodstained from Washington.scandals still metastasizing Try as he has, Obama has failed to use the bully pulpit to take the spotlight with his talk of a somewhat improved economy and a handful of endorsements for social issues for his farleft base. Instead, there is the Republican Greek chorus drumbeat exploitation a growing spectacle of incompetence, petty corruption and failed ideologically-driven failed “comprehensive” solutions. Obama’s directed feints at infinitely complicated social, political and economic problems requiring petty politics maneuvering has never had White House vigor.

Pres. Xi Jinping, although superficially in better shape, also was vacationing from domestic problems that not only threaten his administration, but according to many knowledgeable observers, the Communist Party’s regime itself. Such warnings have come even from CPC leaders public statements. Xi’s answer to multitudinous crises bearing down on him in his first months in office is ever more slogans. A little learning is a dangerous thing, as they say, and Xi’s short American sojourns have apparently given him a heady notion of “soft power”. He played the role of Charming Old Uncle leading up to his elevation — assisted by his sing-along wife, purportedly a nationally known chanteuse if in military uniform.

But even the best imitation of American PR cannot camouflage a flagging economy with growth falling far below the formerly accepted minimum for stability, a pending regional and local debt-credit crisis, and an overall economy increasingly victim as “the world’s factory” of general world economic malaise, not excluding the EU. Despite repeated assertions of policy changes, Beijing has failed to get off the top-down unlimited expansion of capital plant jeopardizing what must in time become a shift to a  more consumer oriented economy if it is to prosper.

For all the talk of lessons learned from an entirely illogical historical analogy of China to Germany and Berlin’s aggressions in the 20th century as a latecomer to the table of the Westphalian nation-state, there isn’t much evidence Beijing has learned whatever “lesson” there was to be had. All the while touting peace and stability, China has laid fantastic claims to southern ocean resources never claimed before except with a few dots on a map, initiated a border incident to the century-old Himalayan frontier map dispute with India on the eve of their vice president’s visit, challenged a new more assertive Japanese government over islands for whose claim the Chinese can muster little authority, and been unwilling or unable to rein in chauvinistic and even threatening talk by mid-level military. Neighbors like the Southeast Asians, while always intimidated by their huge northern goliath when it is ascendant, are furious, flirt with whatever surcease Obama offers with his so-called “pivot” to East Asia, and try to get their ducks together for a united front to Beijing. [Meanwhile, they are lapping up the benefits of a new China economy next door.] Soft power, indeed!

Nor will Obama’s new foreign policy team likely have answers for any of the outstanding issues which Beijing’s policies or lack thereof present the U.S. Navy, the traditional peacekeeper in the Western Pacific. All are leaders from behind, American exceptionalism deniers, and UN-firsters who like their boss mask all this with macho pronouncements on drone warfare and guard intelligence data mining. SecState John  Kerry apparently blithely plans to outdo Hillary Clinton in accumulating mileague in some sort of timewarp in which he thinks he is continuing the old Mideast shuttle diplomacy in the midst of a total breakdown of the 1920s Anglo-French biorder arrangments. Susan Rice, with some of the sharpest elbows in Obama’s inner circle, is now supposed to be the great mediator of conflicting bureaucracies as National Security Adviser. Many will see her appointment, finally, as conclusive evidence it is time to make that NSA, too, subject to Congressional advice and consent, like every other cabinet post. For her very appointment was a poke in the eye to the Republicans – if not some of the conservative Democratic senators – given her still unexplained role as spokesman for the Administration in the Benghazi affair. The President, himself, had said she knew nothing and had nothing to do with it. The new ambassador-designate  to the United Nations, Samantha Power, is noted for her shoot-from-the-hip pronouncements on everything from how the UN should organize a military operation to “free” the Palestinians from the Israelis to hints Washington intervene in the current Syrian shambles. She is consistent in believing the highest US foreign policy priority is averting human rights catastrophes, whenever, wherever, however. In the not so far background is Brennan of Arabia as head of CIA, apparently the main influence on Obama’s serendipitous theories about Islam and Muslims – at least before the Arab Spring ripped open the real Mideast underbelly.

There is, of course, the mysterious disappearing act of Tom Donilon, outgoing NSA, as one of the President’s intimates and supposedly author of “the pivot”. Without much Asia background he was the China hand who went to Beijing to set up the meeting’s agenda such as it was. Civilian life is not, in the end, one would assume, going to protect him from Congressional inquisitors – if they ever get back to it – asking his role in the Benghazi “stand down” that refused aid to the beleaguered murdered victims in Libya

None of the outstanding issues between Washington and Beijing will get anything but rhetoric for a while: Former chief of staff and now Treasury Sec. Jack Lew has reaffirmed that Chinese manipulation of their currency is still as big an issue as ever despite its small appreciation in recent months as Fed Chairman Ben Bernandke continues to roll the dollar printing presses. But Treasury will not formally invoke the sanctions required if Beijing were to be formally named. The private sector, fortunately, has waked up to what continued, persistent and defiant cyberwarfare by the Chinese is doing to the already shredded concepts of intellectual property which Beijing ignores and, of course, eroding our vast but dwindling technological military lead.

Washington keeps lighting candles and praying Beijing will do something to restrain the North Koreans building weapons of mass destruction. But despite warm noises from various official and media sympathizers, in fact, what Beijing is doing is turning all its efforts to harnessing the North Korean economy such as it is but with its valuable direct access to the Pacific. Beijing obviously is anticipating that day when the starving, bluffing Pyongyang regime finally implodes and the remnants slide into the lap of South Korea, an American ally.

So, another year, another summit – although actually we are going to have at least two more this year. One has to have sympathy for poor old grand sumiteer Henry Kissinger, running around China before the big affair. The ageing Henry was only able to get the BBC to listen to his views of what, where and how relations ought to be arranged between the two powers. After all, Kissinger, whatever his exaggerations of his role, did live in the world of the giants now taken over by pigmies in pseudosumitry. No wonder he can’t get his foot in the door.

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