Category Archives: Chinese Infighting

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.


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.





Whose tail is Beijing twisting?


The enticement of what is seen as China’s relatively suddenly developing huge market and its infrastructure investment rampage around the world is pulling U.S. policy off course.

The latest evidence is a quiet struggle inside the World Bank group.

One of the holy of holies of U.S. management, in effect, of that international institution since it was created as part of the monetary and current settlement of World II, was its advocacy of free markets. True, the bank itself was a centralized run operation with delegates from the various countries as stockholders ands guarantors of its loans, in effect on a government to government basis.

But early on, the Bank established the International Finance Corp. [IFC] as its “free enterprise” window. The IFC’s function was to partner in otherwise too risky joint investments between foreign lenders and local developing market capitalists in the Afro-Asian world and Latin America. Its activities have been relatively modest these five decades compared to the massive lending of The World Bank itself on its government to government basis. Still though its operation have been limited through the years, it was seen as an effective device for encouraging private investment and market operations in countries whose former colonial regimes favored government enterprise

But now, ironically, the IFC has strayed from what the world generally accepts as “the Washington consensus” – a set of 10 economic policy prescriptions constituting the “standard” reform package for crisis-wracked countries by Washington, the D.C.–based International Monetary Fund (IMF), World Bank, and the US Treasury Department. Under the hand of a former Goldman Sachs banker, Jin-Yong Cai, now leaving 10 months before the expiration of his term after a turbulent three years, to return to Asia and the private sector, the IFC has had a large number of deals involving Chinese-state companies.

The last straw for some critics has been a $300 million IFC investment in China’s Postal Savings Bank, a paltry sum compared to the state-owned China Life paying $2.5bn or its 5 per cent stake. But it continues a pattern in which the IFC’s dedication to private enterprise has gone awry. Some World Bank old hands are asking how this particular investment conforms to the IFC’s mandate to lend to private companies where capital was either unavailable or too expensive and other investment options were not available.

Cai has argued the investment in the Postal Savings Bank will help bring financial services to many of China’s “unbanked” in the hinterland away from the largest cities. That’s certainly a worthy objective, and he says it will bring a healthy investment return as well. But while all that may be true, it seems to be just one more example of how policy, often led by the U.S. government, has been bending the rules to accommodate the Chinese.

That issue could become a major one if the current sudden reduction in growth of the Chinese economy continues to fall as there seems every evidence it will. The world commodity markets, already suffering from the impact of slowing economies in Europe and India as well as China, have already been hit. More bad news seems to be on its way from Beijing even though there is a persistent hope in all quarters that the miraculous high rates of growth of the last two decades will, somehow, return. That isn’t likely.

And as crisis arises in a number of African and Latin American countries where huge Chinese infrastructure investments were committed, in reality tied to high commodity prices for Beijing’s imports, we get wind of how far the Chinese have snuggled into relationships with Western institutions. There will be a price to pay for that, and Western policymakers – above all those in the U.S. – had better be alert to it.





The scandal of Christian persecution

The lack of public outcry over the continued persecution and murder of Christians in the Middle East is a scandal of enormous proportions. Only a few websites devoted to possible rescuing these victims dogs the internet. But pronouncements from public figures and even the leaders of Western Christendom are few and far between.

The fact is that Christians today face more persecution in more countries than any other religious group.

U.S. Christians sources estimate that 180 Christians are killed in 60 countries monthly for pursuit of their faith. Many of these are in notorious environments such as North Korea. But there are continuing incidents in nominally secular India, for example, where the current administration has its roots in Hindu chauvinism and in its twin, Moslem Pakistan.

But since 2011, of refugees official settlement in the U.S. just over 2,000 have been Muslim but only 53 Christians. It is true that particularly Syrian Christian refugees often more affluent, have made their way to the U.S. through ordinary visa channels and permanent residence. But the Obama Administration opposes legislation which would fast-track Christian refugees. That’s despite the fact that nearly a third of Syria’s Christians, about 600,000, have fled, harried by extremist groups like the Nusra Front [an Al Qaida affiliate] and now Daesh.

The Obama Administration downplaying of Christians in the refugee crisis is based on its fear such support would be viewed and used by Daesh [ISI or ISIL]. Or that it might be considered in the U.S. as part of the argument of “the clash of civilizations”. As in his earliest public Mideast pronouncements, Obama has argued inordinately supposed “Islamohobia” and antagonism toward American Moslems and the world Islamic community. But the reluctance to take on the issue goes back to the Bush Administration when Condoleezza Rice told a refugee aid official the White House did not intervene in ‘‘sectarian’’ issues.


It’s also true that Mideast Christians, generally, suffered less under the former autocratic regimes – including Sadam Hussein’s Iraq – than they have under their successors which often have a strong Muslim cast. Syrian Christians, for example, tended to stay loyal to Basher al-Assad rather than join the originally peaceful opponents of his bloody regime. The various Christian sects, some “in communion” with the Roman Catholic Chruch, others related to Eastern Orthodoxy, and others unique to the region and India, do not want to give up their ancient claims to their historic homes.

But having said all this, the toll of Christians in the region has been horrendous. In many instances Daesh has simply beheaded locals where it has taken over traditional Christian villages. These ethnicities date back thousands of years even preceding their conversion as the earliest followers of Christ. They have been given the choice of converting, death flight, or paying jizya, a special tax on “followers of the book”, that is, Christians, Jews and Zoroastrians.

Obama did get around to referring to Christian and other minorities last fall when he said ‘‘we cannot allow these communities to be driven from their ancient homelands.’’ And when Daesh threatened to eradicate the Yazidis, an ancient syncretic sect combining elements of the region’s major religions, the U.S. beat back the terrorists with intensive bombing and Special Forces intervention.

But proposals to permit a large entry of Mideast Christians has been denounced as a violation of the constitution prohibition against religious favoritism. But in fact admission of refugees has often been based on a particular ethnic group targeted by oppressors abroad. And in this instance Christians constitute such a group.

The argument that more forceful rhetoric and more specific Christians worldwide, but particularly in the Mideast, must be made. The charge of “crusaders” – distorted as it is in all aspects – by Daesh and other Islamic terrorists should not be an excuse for not taking up the cudgels for an important and generally neglected human rights cause.



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.










Taiwan’s democracy needs US arms

If there was any doubt that Taiwan is the first democratic state in the long history of the Chinese, it came this week in the buildup to January presidential election. The current ruling Kuomintang, descendant of Generalissimo Chiang Kai-shek’s Nationalists who fled the Mainland Communists in 1949, suddenly switched nominees.
At an extraordinary party congress they voted overwhelmingly for party Chairman Eric Chu..Chu, mayor of suburban New Taipei City and a former accounting professor. The former candidate Hung Hsiu-chu had been running about 20 percentage points behind Democratic Progressive Party candidate Tsai Ing-wen, another female candidate. Tsai advocates greater caution in relations with Beijing, her radical wing proposing formal independence instead of the current ambiguous de facto autonomy.

The KMT was trying to recoup after disastrous parliamentary elections last November, when they paid a price for several deals with a Chinese Communist Party Mainland partner. The KMT, the business community and academic economists, had all argued for them because of the Island’s economic integration with the Mainland and its lackluster economy.
Taiwan-based firms moving to, or collaborating in joint ventures in Mainland China, have fed trade between the two to $198.31 billion, with exports from Taiwan to the Mainland at $152 billion. Cheap Mainland labor assemble high-end components from Taiwan for reexport. But as the Mainland economy has rapidly dived into a slump from record-breaking two decades of rapid growth, the Taiwanese are again turning to Southeast Asia and the U.S. for thrust for their export-led economy
After taking a hard line against the last DPP president, Chen Shui-bian [2000- 2008], Beijing softened toward the current Nationalist President Ma Ying-jeou, but now constitutionally barred from a third four-year term. Ma’s government signed 23 agreements with China to promote investment, tourism and trade, with tensions reduced to their lowest level in more than six decades.
But the growing subversion of Hong Kong despite its autonomy enshrined in the 1997 British agreement to turn it back to Beijing has had its effect. In spring 2014, the Sun Flower Movement, a coalition of students and political activists, occupied the Taiwanese parliament and ministries, demanding detailed parliamentary scrutiny of the 2013 Cross-Trade Service Agreement Ma signed with Beijing.
It’s not at all clear what comes next. China President Xi Jinping in the midst of the most stringent crackdown on political and media activity in several decades, struggling to concentrate power in his hands rather than the recent collegiate Communist Party leadership. Xi reputedly knows as much as any senior Chinese official about the Taiwan issue, having served as governor of a Mainland province facing it. Bringing Taiwan and the Singkiang Uighur and Tibetan dissidents under Beijing control has been one of Xi’s main goals.
The People’s Liberation Army [PLA] has moved ballistic missiles and modern warplanes to bases overlooking the Taiwan Strait. By the end of 2010, the PLA had more than 2,000 ballistic missiles aimed at Taiwan, 50 percent more than just two years earlier, and ten times more than in 2000. A 2007 Rand Corporation report questioned whether the U.S. could fulfill its obligation to defend Taiwan in the event of an all-out Mainland attack. “The Chinese People’s Liberation Army is well aware of its own shortcomings and the United States’ military superiority,” the Rand Air Force study said. “Instead of engaging U.S. forces head-on, they would attempt to take advantage of what they perceive to be American weaknesses, including the need to deploy and operate forces thousands of miles from home.”
That is why the current transfer of weaponry to Taiwan waiting approval in the Senate, as well as its reexamination given the new Mainland buildup, is an absolute priority the Obama Administration and Congress should get on with.

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.

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

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.

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.

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”.

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.