China: Everything Is Wonderful, Really It Is


July 19, 2015:   Chinese economic growth continues to slow down and there is growing concern that the government is hiding many crucial details. Current estimates of GDP growth for 2015 (7 percent) are believed to be too high because of inaccurate data used (and often provided) by the Chinese government. Chinese and foreign investors are increasingly concerned about the veracity of government economic data use to mask the real dangers. This is a major reason for the recent stock market crash in China. Technically this was not a crash but a correction because while the markets lost 30 percent of their value in a month they are still up 70 percent for 2015. While that is reassuring to investors who bought their shares in 2014, it means little to the millions of small investors who came to market boom late and lost big. The damage was made worse by the ease of borrowing money to buy stocks (“buying on margin”), which was a major factor in the epic American 1929 stock market crash (where the market lost nearly half its value in two months and 90 percent within three years). Unlike in the West, where (especially the U.S.) where most stocks are owned by pension and mutual funds (and a third by families) most Chinese stocks are owned by 90 million individual investors and many of those invested late and got wiped out. The government can’t hide the damage done here and the pain is widespread and felt mainly by the newly affluent Chinese who feel betrayed by their government, which has been encouraging such investing for years.

Because of the Internet, and despite Chinese efforts to “control” (censor and influence) information, it is possible to gather enough economic data to seriously challenge official government numbers. This is forcing the Chinese to reveal ugly truths they would prefer to keep hidden. The government is trying to clean up the corruption in the banking sector and state owned enterprises but does not want the public watching. That’s partly because a lot of senior officials (present and past) were criminally responsible for this mess and partly because if these credit and government budget problems are not fixed there could be a major financial crises and years of economic depression. Most Chinese also know that if a crises is imminent government officials want to get the information first so they can save their own personal wealth before the Chinese currency and stock markets lose most of their value. This is one reason why the government wants to control anti-corruption efforts, lest the public find out too many details of how badly behaved their leaders still are. This is particularly true of cases where corrupt officials with powerful friends use that influence to escape punishment. This is particularly the case with children and grandchildren of families that were in leadership positions when the communists took over in the 1940s. Nearly as frightening is growing publicity (despite efforts by censors) of corruption in state owned companies. This is no secret to most Chinese but the details create public anger towards the government that seems to tolerate all this misbehavior. Equally embarrassing are the official and unofficial revelations about senior people in charge of anti-corruption efforts who are found to be corrupt. Publicity of this sort of corruption is particularly dangerous to the government because it makes the ruling (since the 1940s) Chinese Communist Party look incapable of reforming itself.

Most Chinese already know their government is full of corrupt and inefficient officials and exposing too many details of this mess could trigger another major uprising. It’s happened before, many times, in Chinese history. In the mid-19th century the Taiping uprising killed over 20 million. This little known (outside China) conflict was one of the four mega-wars (the Napoleonic Wars, the Taiping Rebellion, World Wars I and II) which together accounted for over 70 percent of the 250 million war dead since 1800. Chinese leaders are more aware of their history than in other countries and believe that past disasters will return under the right conditions. The government had a close call in Hong Kong in 2014 where thousands of pro-democracy demonstrators tied up the streets for months. The government is prosecuting some of the leaders and that has proved to be yet another unpopular move that many Chinese consider corrupt.

China is having a hard time convincing the North Korean leadership that ignoring serious economic and corruption problems is not acceptable. Instead many North Korean leaders blame their problems on China. That is made worse by China demanding that North Korea halt its nuclear program and follow Chinese advice (free the economy) to deal with the growing economic crisis. Turning up the heat on its unstable and increasingly troublesome neighbor has not worked. In late 2014 China told North Korea that it could no longer depend on automatic Chinese support if North Korea got involved in a war. China cut off various forms of aid but that did not change North Korean refusal to reform its economy and get rid of its nukes. Not only did North Korea refuse but increased its public defiance of China. What makes this really painful for China is that they are simply asking North Korea to improve their economy using what worked for China (which remains a communist police state). The death of Kim Jong Il in 2011 made Chinese style economic reforms more acceptable, but not in a big enough way. China continues to pressure the north to implement reforms and this fails because the North Korean government has split into reform and conservative factions, making change difficult to agree on. Despite all this China has made it clear to the world that North Korea is a Chinese responsibility and if the North Korean government collapses China, not South Korea, will pick up the pieces. South Korea does not agree with that, and this could be a big problem in the future.

The Philippines recently announced it is going to make repairs on a base it maintains on a reef that both countries claim. A detachment of Filipino marines has been stationed there on a World War II era landing ship (the BRP Sierra Madre) for nearly two decades. The Filipino navy deliberately grounded the LST on Second Thomas Reef in 1999 to provide a place for this “observation team”. In 2013 Chinese patrol ships came within nine kilometers of the LST, which China insists is there illegally. The Philippines warns China that it will resist any attempts to use force against the grounded ship and while the Chinese still tries to interfere with supply ships, they have stayed away. China has protested the effort to make repairs on the LST. China has also protested the Philippines sending a large team of lawyers and experts to the Netherlands for the UN tribunal that will hear Filipino charges that China is acting illegally in the South China Sea. It is expected that the Philippines will win this case and the Chinese apparently believe that as well as they are not participating in the tribunal and insist they will ignore any adverse decision. In light of that the Philippines recently announced that it is reactivating the naval base at Subic Bay, which the U.S. fleet abandoned in 1992 as part of its post-Cold War reductions. By reactivating the naval base there will be a convenient place for allied (including American, Japanese, Vietnamese and Taiwanese) warships and warplanes to stay. The revived Subic Bay naval base will have better security than nearby commercial ports and be equipped to cater military needs. China sees reactivating Subic Bay as a hostile act directed at China. The Filipinos see it as an act of self-defense against Chinese aggression.

None of China’s neighbors believe legal action will make China halt its continuing moves in the South China Sea. China is now attempting to regulate how other countries can use it (for fishing, oil exploration, or even transit via sea or air). Only American military power can provide an obstacle the Chinese cannot just brush aside, at least not without risk of escalation and violent encounters. It has long been American policy to actively oppose the sort of claims China is making. So far American opposition to China has been very restrained and not persuaded the Chinese to slow down.

China recently announced that it has largely completed its seven island building projects in the South China Sea. This announcement was believed, by many Filipinos, to be an effort to reduce international criticism of this island building. China did not consider it newsworthy that it was now proceeding with construction of air strips and other military facilities on these new islands. China insists that the island and base building is legal despite protests from the United States and nations bordering the South China Sea.

China is apparently putting its aggressive territorial claims against India on hold, the better to concentrate on the South China Sea. This has led to Japan and the Philippines working out details of a plan to have the Japanese navy and air force to use Filipino military bases. India is in touch with the nervous nations that border the South China Sea and wants to cooperate and coordinate in efforts to halt the Chinese aggression. In response China has offered to resume negotiations with the Philippines over the South China Sea disputes. China said it was willing to allow the Philippines to share the new facilities (on newly created islands) China has built. This makes it clear that any peace talks begin with the understanding that China owns the South China Sea. That makes any further talks difficult to justify.

One reason China is confident it can prevail in its claims on the South China Sea is the fact that the Chinese military is getting larger and more effective while the neighbors are not keeping up. Some have been trying. For over a decade Taiwan has been attempting to upgrade its military with new weapons and better training, yet there is little progress in either area. Delivery of new weapons has quietly been delayed, and training reforms put off. While making the military stronger is popular with Taiwanese in general, government officials seem more concerned with not upsetting China (which is very much against a strong Taiwanese military). This growing military weakness versus China is becoming more of an issue in Taiwan and there is more pressure to improve training and reduce corruption within the military before it is too late. Yet many Taiwanese prefer to believe that the United States will protect Taiwan from Chinese aggression.

July 15, 2015: China, Thailand and Burma have agreed to build a 7,000 megawatt hydroelectric dam on the Salween River in eastern Burma. China and Thailand were each cover 40 percent of the cost and Burma the other 20 percent. Burma will get ten percent of the electricity. The dam and hydroelectric facilities will take five years to build.

July 14, 2015: After twenty months of negotiations between Iran and a UN backed coalition (Britain, China, France, Germany, Russia, United States) a treaty was agreed on. This came because of a growing willingness among many coalition members to trust Iranian pledges to abide by any treaty. Many in the West (and the Arab world) don’t trust Iran and demand a deal with strict monitoring. Iran rules this out as a violation of their sovereignty, an affront to their honor and so on. Iran appears to have won and China expects to benefit greatly from trade and military cooperation.

July 13, 2015: In the northeast (Shenyang) police shot dead three Uighurs and arrested another when the four who resisted arrest with knives. The four were apparently attempting to illegally exit the country via the northeast and travel to the Middle East to join an Islamic terrorist organization. But other Uighurs insist that the four were economic refugees, fleeing the Uighur homeland in the northwest because the government is persecuting Uighurs there and making it difficult for Uighurs to get jobs or start and run businesses.

July 10, 2015: India and Pakistan have joined the Shanghai Cooperation Organization (SCO). This is a regional security forum founded in Shanghai in 2001 by Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Russia, and China. The main purpose of the SCO was originally fighting Islamic terrorism. Russia, however, hoped to build the SCO into a counterbalance against NATO. SCO members conduct joint military exercises, mostly for show. They also share intel on terrorists, which is often useful. Iran, India, Afghanistan, Pakistan, Mongolia, and Turkey were all favorably disposed towards joining the SCO. These nations were allowed to send observers to meetings. China has put more emphasis on economic cooperation because greater Chinese economic power means that China is replacing Russia as the principal investor and trading partner throughout the region. Russia does not like to dwell on this, because it means China is expanding its economic and political power. On paper China is now the dominant military power in Eurasia, a fact that Russia likes to downplay.

July 8, 2015: A year after the June 2014 launch of its fifth Type 903A replenishment ship China launched its eighth one. In the last two years there has been a massive acceleration in the production of these ships. The first two of these tanker/cargo ships appeared in 2004. By 2008 these ships were regularly at sea supporting the task forces (each with at least two warships, plus the Type 903) sent to the anti-piracy patrol off Somalia for six month tours. The replenishment ship did just that, supplying fuel, water, food, and other supplies as needed. The replenishment ship would go to local ports to restock its depleted stores and return to the task force. China needs more Type 903s support the growing number of long distance training operations into the Western Pacific and the government has apparently responded with orders to build more of them, apparently a lot more. It’s not just one type of supply ships China is rushing to build. Satellite photos reveal that China is building a smaller version of a new American class logistical support ships; the Mobile Landing Platform (T-MLP). The Chinese MLP is about 5,000 tons but is clearly of the same design as the larger American version. In early 2013 the U.S. Navy received the first (USNS Montford Point) of three T-MLP ships. Montford Point enters service in 2015. The other two will be in service by 2018. The navy wants to use two of these five new ships to serve as floating bases to support commando type operations ashore.

July 6, 2015: The government is publicizing the Y-8GX6 (also known as the Gaoxin-6), a new anti-submarine maritime patrol aircraft that has now entered service. This comes after more than a decade of development and five years of flight testing. Gaoxin-6 is similar to the American P-3C maritime patrol and anti-submarine aircraft. Both aircraft are similar in shape and equipment. The first flight of a fully equipped Gaoxin-6 took place in 2012, and apparently there was a major effort to get this aircraft into service as soon as possible. China is playing catchup here, as the U.S. has been using these anti-submarine aircraft for sixty years. While Chinese espionage efforts may have obtained details of most American anti-submarine aircraft equipment, there’s no way to steal decades of experience. Another problem China will have is that when their anti-sub aircraft are actually put to use tracking American and other (especially Japanese and South Korean) submarines this will take place in international waters where the Gaoxin-6 can be followed and monitored by American intelligence collection aircraft and ships. The Gaoxin-6 is a four engine turboprop aircraft that weighs sixty-one tons, has a thirty-eight meter (124.7 foot) wingspan, and a cruising speed of six-hundred and sixty kilometers an hour. The Y-8 is based on the Russian An-12 and U.S. C-130.

July 4, 2015: A South Korean naval officer has been arrested and accused of passing secrets (on a new warship) to China. This took place between mid-2013 and February 2015. Apparently North Korea did not get any of this secret data. The arrested officer was befriended and recruited by a Chinese intelligence operative while studying in China.

June 29, 2015: Thailand has decided to buy three diesel-electric submarines from China. German and South Korean subs were also considered but the Chinese price ($335 million each) and offers of technology transfer was considered the best deal. The Thai Navy has not operated subs since 1951. Thailand would be getting the 2,000 ton Type 41. These Song Class subs look a lot like the Russian Kilo class and that was apparently no accident. China began ordering Russian Kilo class subs, then one of the latest diesel-electric designs available, in the late 1990s and within a decade began building boats that were similar to the different models of the Kilo. Pakistan also ordered six Type 41s in early 2015. Thailand will not receive these subs until the early 2020s, assuming a new (elected) government does not cancel the deal. Aside from prestige, most Thais see no value in having subs.

June 28, 2015: Burma revealed that it had recently replaced an air force general, apparently in response to a March incident where the Burmese air force accidentally dropped a bomb inside China (killing several Chinese) while attacking tribal rebels near the Chinese border. This incident made Chinese very angry and some sort of suitable response from Burma was expected. This despite the fact that with rebels deliberately operating so close to the border incidents like this happen all the time, but usually because troops are firing back at rebels and some of the bullets and shells land in China. 




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