September 14, 2018:
Military reforms, which have been underway since the 1990s (modernization began in the 1980s) are gradually having an impact. China now has a larger, better equipped and better trained force than India or Russia (the two neighboring major powers) and is on track to catch up with and surpass the United States in the 2030s. It all depends on the current government (a communist police state coexisting with a market economy) that is still threatened by economic mistakes from its communist (corrupt command economy) past. That includes massive pollution in urban areas, continued debilitating corruption in the communist bureaucracy and, most dangerous of all, a banking system still trying to deal with the remaining financial problems (large, uncollectible debts, unreliable economic data and frequent market manipulation) that emerged as the economy transformed itself from communist to free market. Another risk is the use of nationalism, especially claims on neighboring territory (South China Sea and parts of India for now) and publicizing the growth of Chinese military power. The nationalism angle counteracts, to some extent, the popular anger against the pollution, corruption and police state.
Combining a communist police state with a market economy is a unique situation that is inherently unstable. The Chinese communists believe they have no other choice, especially considering the damage the communists have done. There is no popular support for returning to the imperial system (which the current government is quite similar to, just another dynasty and all that) and democracy would destroy the wealth and power of the CCP (Chinese Communist Party). So in addition to all the changes China is going through there is the problem that the current situation has no precedent and the leaders are hoping for the best as they continue to navigate unfamiliar territory.
Chinese leaders cannot ignore these things they try to hide from local and international mass media. This is especially true of public protests inside China. The government will negotiate and make deals with the larger and more persistent groups of protestors (after the usual tactics of buying or scaring off the leaders doesn’t work.) The most recent protest nightmare involves military veterans who are, by custom and law revered in China. There over 55 million veterans, ranging from those who fought in the Korean War (1950-53) to those involuntarily dismissed during the 2015 round of personnel reductions. The problem is not that many veterans are victims of corrupt local officials but that the Internet, despite heavy government censorship, has enabled the veterans to get in contact with each other and organize large demonstrations in the capital. For the government, this type of protest is the most embarrassing and while the government has not had one of those since 2017 the veterans are organizing larger and more frequent demonstrations in provincial capitals. The veterans complaints are basically the same as most other Chinese; corruption, broken promises and officials who appear to ignore legitimate complaints. Since the government has been going to great lengths to ensure the loyalty of the military to the CCP (over anything else) angry veterans have to be handled carefully. In part, this is because the veterans know more than the average Chinese how things really operate inside the military.
For example in 2015 many veterans noted that over 4,000 senior (colonel or general) officers have been audited in the previous two years and five percent were found guilty of some misbehavior and punished. Sometimes this meant a demotion or just a written reprimand. Many military veterans knew that the percentage of dirty officers is higher so the corruption is obviously surviving in the military. Few really high ranking officers have been prosecuted. It is believed that more corrupt senior officers are being caught but most of them have the ability (evidence of bad behavior by even more senior officials) to demand and get little punishment. Usually, that means no jail time but they do get removed from jobs that enable them to steal and are often forced to retire. This sort of thing angered many veterans who had personal experience with corrupt officers and were not happy about how the government allowed many of these bad officers off with little or no punishment.
Corruption, in general, has become an increasingly publicized issue. It’s not just Chinese people pressuring the government to clean up corruption but China’s trading partners as well. That is one of the reasons for the current trade war between China and the United States. Doing business with China means putting up with a lot of illegal (or at least unethical) issues. Case in point was the recent Chinese decision to clean up the corruption in its national credit rating industry following some major scandals as large Chinese firms with excellent credit ratings suddenly collapsed because of hidden financial problems. A growing number of Chinese individuals and organizations as well as foreigners are buying stock in Chinese companies or otherwise investing in these firms. It is now clear that a good credit rating can be obtained via bribes and that is making it more difficult for all Chinese firms to raise capital. Over the last few years, China has been trying to get provinces and state-owned firms to provide accurate economic data. Turns out, as many foreign economists long suspected, a lot of Chinese economic data was false. It is still difficult to go after all known corruption in China. People who are loyal and powerful supporters of president Xi still tend to be untouchable.
Coping With Iran
China is obtaining a larger economic presence in Iran by helping Iran deal with the return of sanctions. The economic problems in Iran are partly the result of the Americans resuming most of the sanctions in November, which includes bans on buying Iranian oil. Already Iran is offering discounts to its customers to entice them to defy the Americans. China will seek, and pro-American Asian nations will get exemptions The United States announced this decision in March and that set off a financial panic in Iran, which was already suffering from massive government corruption and decades of mismanagement of the economy.
Even China and India, two major customers who said they would defy the sanctions, have cut orders because sanctions will increase shipping costs and also increase the risk of Iran going to war. Sanctions mean the cost of insurance rises and fewer shipping companies are willing to provide tankers to move sanctioned oil. China remains on good terms with Arab oil states and both Iran and the Arabs will sometimes call on China to help set up secret talks between Iranians and Arabs. China has a way of seeing problems (like Iran getting hit by sanctions once more) as opportunities. China is willing to break international law, use bribes, and generally entertain just about any proposition.
Immunity From Islamic Indignation
The Islamic world is quick to criticize any non-Moslem nation that is seen to be persecuting its Moslem minority. There is one exception to this; China. Currently, China has sent several hundred thousand of its Moslems to re-education camps because China considers Islamic conservatism or radicalism a mental disease that can be cured by re-education. The Moslem world is silent on this, in large part because it is a known fact that China will ignore any such criticism and seek to punish (economically or diplomatically) any Moslem country that would criticize China. Many Moslem majority nations depend on China for economic, diplomatic and military support. That is important but not as much as the fact that China simply ignores any criticism about how it treats its own Moslems.
Meanwhile, local officials in Xinjiang have been praised by the national government for policies that resulted in no terrorism related deaths during 2017 and (so far) in 2018. The national officials have demanded that all local opposition to Chinese (Han) culture and control be eliminated. Local officials were given authority to try anything and that has resulted in severe hardship for the original occupants and rulers of this region; the Turkic Uighurs. Xinjiang has become a test area for whatever government monitoring and control measures local officials want to try and eventually widely implement throughout China. That is the reason for the sharp reduction in terrorism or separatist activity in Xinjiang. The most obvious examples have been the introduction of a lot more new technology for monitoring the population. This includes thousands of vidcams and a very effective facial recognition system. This is in addition to a growing list of methods used to collect data on the non-Han Chinese population, especially anything related to ethnic separatism or Islamic terrorism. This helps the government select those who will be sent to re-education camps (for a few weeks or six months or more.) There are currently over 100,000 Moslems (most of them Uighur, ethnic Turks who used to be the majority in Xinjiang) in the re-education camps. That is out of the nine million Uighurs in the province. Uighurs are a shrinking minority as more and more Han Chinese move in.
The re-education camps contain very few Han Chinese and apparently include even more “experiments” including the use of new drugs to induce uncooperative Uighurs to undergo an attitude adjustment. A new generation of security analysis software and hardware is replacing a lot of the older manpower intensive data collection methods. This is used to identify seemingly cooperative Uighurs, especially those working for the government, and send them to the camps for treatment.
The Big Brother methods that worked in Xinjiang are showing up in Tibet, even though Tibet was never as violent as Xinjiang. But many ethnic Tibetans are still separatists and China considers that dangerous and subversive thought that must be adjusted.
North Korea has hoped that China would ultimately back its old ally and protégé of North Korea but that is not happening. Despite the current trade war the Americans and China are involved in, China is not going to change its mind on the need for North Korea to get rid of its nukes. Chinese officials are also trying to make Kim Jong Un understand that the Americans have the edge in the current trade war because Chinese banks are vulnerable, largely because of the large number of state-owned firms that have not been privatized and survive only because of cheap, and often uncollectable, loans from state-owned and (under government pressure) private banks. China is more dependent on exports to America than the U.S. is to receiving those exports.
Kim Jong Un is not stupid. Moreover, he was educated in Western (Swiss) schools where he learned the basics of Western economics. This Western economic model is what China has followed, with great success, since the 1980s and is demanding that North Korea emulate that. The Chinese are urging Kim Jong Un to learn from the Chinese experience, including mistakes the Chinese made and are in the process of fixing. The Chinese leader Xi has established a personal relationship with Kim Jong Un, something rare in Chinese-Korean history. This includes doing personal favors for Kim, like quietly shipping two generators (together producing 200,000 kw) to North Korea by ship, where they were quietly moved (without going through customs) to the North Korean capital, where they filled in for failing generating equipment that North Korea cannot afford to replace. Xi had said he would enhance this relationship further on September 9th with a visit the North Korean capital as a guest at the 70th anniversary of the founding of North Korea. The presence of Xi would have been a big deal for Kim Jong Un and would have put Kim even more in debt to his powerful patron. But at the last minute, Xi canceled and sent the number three man in China as a replacement. Kim still considered this a mark of respect because the man Xi sent was widely known and China and Koreas as a powerful and influential official. Besides Kim met with Xi three times this year, an unprecedented situation for relations between the two nations. At this point, China has the best chance of getting North Korea to enact economic reforms and shut down the nuclear weapons program. That effort is not moving along as the Chinese would like. Despite that, the Chinese see this personal relationship as the best way to bring Kim Jong Un around and the last minute Yi cancellation was a reminder of that. In this part of the world, that is how things are done. China had been loosening up on sanctions enforcement since last March had North Korea had not responded as China expected.
The biggest problem Kim Jong Un faces is his own economic problems, which are getting quite desperate. The North Korean economy is crumbling after several years of stabilizing and even growing (because of allowing some free market activity). Why this irrational and self-destructive behavior by North Korea? It is most likely that the long-simmering disagreements about economic reforms and relationships with China are at the heart of it. China has long complained about the chaotic and self-destructive North Korean leadership. It’s not just the ruling Kim family (who are quite odd but so are many politicians), but the whole paranoid, dysfunctional, unpredictable atmosphere in North Korea. China is particularly critical of the unpredictability and has been demanding more discipline and, to put it bluntly, obedience. Lacking that, there will be consequences. More Chinese troops have been moved to the North Korean border, and China is less discreet about its network of spies and agents in North Korea. The rumors of a ruthless "China faction" in the North Korean leadership have been given some official recognition by the Chinese. Thus the Chinese are attempting to use the "offer you can't refuse" gambit. It may work and bring about much needed reforms. Otherwise, the Chinese threaten to pull the plug on all aid and political support and perhaps order the China Faction to take action, with help from Chinese troops, special operations forces and secret police. This would be an admission of failure by the Chinese although they could put a positive spin on it by referring to past interventions to deal with troublesome Korean rulers. At that point, China would have the primary responsibility for rebuilding North Korea. China could appeal to South Korea, Japan and the United States to join in. That would not attract much help because it would be understood that North Korea had come under Chinese rule. China would endeavor to make the North Korea economic recovery effort pay for itself by insisting that Chinese investments be respected along with growing Chinese ownership of North Korean economic assets. That would generate anger in North Korea but as far as the Chinese are concerned that is normal when it comes to China-Korean relationships.
China and other foreign states know that the situation is getting desperate in North Korea, both for the people in general (less food, electricity and so on) and the government. The growing list of enforced sanctions have shut down or reduced most legal and many illegal sources of foreign currency. This can be seen from the chatter on the black market, where North Korea is less active because they have not got the cash. North Korea has no credit when it comes to legal or illegal purchases from foreign suppliers. There are still North Korean smuggling operations underway but these generally involve basic goods (like oil and items required to maintain or repair things back in North Korea). To raise cash North Korea is leaning on its foreign workers and taking a larger cut of their pay. This policy has its limits because if you take too much the workers realize the job is not sustainable (not enough to send back home to keep kin alive). That will mean more foreign workers trying to defect and fewer suitable candidates for the foreign jobs.
China showed its approval of North Korean efforts at improving relations with South Korea and the Americans by allowing North Korean female workers back into China as well as relaxing its enforcement of sanctions when it came to sending all North Korea workers home. But North Korean workers are no longer allowed to wander around when not working. Most of these workers live in dormitories on factory property and now the North Korean workers are restricted to the factory/dormitory property. The North Korean security personnel who accompany groups of exported workers cooperate with local Chinese police to prevent anyone from leaving the compound. Anyone caught doing so is sent back to North Korea. These restrictions make it easier for Chinese police (and the few North Korean secret police working in China) to detect and arrest defectors. A growing number of the arrested defectors have tried or succeeded in committing suicide before they could be sent back to North Korea. Meanwhile back in North Korea Chinese visiting on business (from truck drivers to technical and management personnel) are complaining about growing harassment by North Korean secret police (who, among other things, keep an eye on foreigners) in the form of accusing the Chinese of minor offenses and demanding the immediate payment of fines. While this may have some legal basis in North Korea the Chinese see it as another questionable method of extracting more cash from visitors. Since these are commercial visitors a growing number are complaining to their bosses back in China and, as in the past, this eventually reaches senior officials who then demand that North Korea deal with the problem before China retaliates (which it has done with increasing frequency and ferocity since the late 1990s). Finally, there is the fact that the Kim family has used Korean nationalism (which is traditionally hostile to China more than Japan, the United States or anyone else) to maintain loyalty. The Chinese and North Koreans do not like each other very much, something which should always be kept in mind by outsiders.
September 13, 2018: President Nicolas Maduro of Venezuela arrives for a four day visit to China. There is already a team of Maduro loyalists in China discussing terms for Chinese aid so there is already some agreed upon deals (involving China extended more credit and developing oil and gas projects). China is the only country willing to put up cash and personnel to fix the Venezuelan economy but that is also because Venezuela still owes China as much as $20 billion and most of it is supposed to be repaid in oil. China is not optimistic but apparently believes Maduro is desperate enough to give the Chinese a free hand to bring in their own engineers, management and skilled workers. Maduro may not agree with all the Chinese terms (like the priority in paying off Chinese debt via increased production and giving China a percentage of Venezuelan oil assets), but he has to realize that no one else is willing to do the job and there are few countries that can. China has already coerced Maduro to pay off most of the Chinese debt. China is also interested in helping Venezuela diversify its economy but that would only be possible if Maduro eliminated a lot of the price and other economic controls he has imposed. These controls destroyed the economy (by forcing firms to sell goods for less than they cost to produce). Maduro has steadfastly refused to acknowledge his role in destroying the economy and perhaps a Chinese economic development deal would give him a way to do what some of his economic advisors have been suggesting for years.
China has already made concrete aid offers. In early July China agreed to invest as much as $5 billion in an effort to repair and restore oil production but has only delivered a few hundred million dollars’ worth so far and made it clear that more cash was dependent on how cooperative Maduro and his associates are. This may have led to the current Maduro visit. Apparently, China is not optimistic but sees the situation as worth a try. China has worked with a lot of dysfunctional governments and rulers worldwide and knows how to measure the odds. Venezuela appears to be a longshot, even though it has the largest oil reserves in the world. Venezuela has brought in some foreign contractors (mainly Chinese) to help repair the damage to the oil industry but the Chinese have discovered that the economic infrastructure, in general, is collapsing and operating in Venezuela is even more dangerous and difficult than in chaotic and violent parts of Africa, Southeast Asia and Afghanistan where the Chinese have succeeded (some of the time) to adapt to a violent neighborhood and minimal local infrastructure. Another role China can fill is as a powerful ally. Venezuela has no wealthy and heavily armed patron. China has come, looked and said: “let’s talk.” Russia and Iran are broke and under heavy sanctions meaning that these two countries have their own problems obtaining needed equipment and tech to keep their oil exports going.
At the same time Maduro was headed for China, a Chinese hospital ship (the Peace Ark) was headed for Venezuela to treat some of the many Venezuelans suffering from the recent collapse of the national health system. In late 2011 the first Chinese Navy vessel (a Hospital Ship) to ever visit Cuba arrived for a working visit while on a world tour. The newly built (in 2010) Peace Ark has continued making short goodwill visits all over the world. Meanwhile, an American hospital ship will arrive in neighboring Colombia, where it will stay longer and treat Venezuelan refugees. Venezuela refuses to accept medical aid from the U.S., or any kind of emergency aid because the Venezuelan government insists there is no emergency.
September 12, 2018: The Philippines is negotiating a treaty that could allow China to share, with the Philippines oil and natural gas revenue from portions of the South China Sea where China claims control of areas that are Filipino according to current international agreements. This deal is unpopular with a lot of Filipinos as well as with neighboring countries also being pressured by China. Malaysian leaders warn that Chinese offers of massive investments come with too many strings and have proved to be more about enriching China and not the country receiving these investments. Any agreement with China on who gets what in Filipino parts of the South China Sea will have to be approved by the Filipino legislature and that is where the Chinese will probably encounter the most opposition.
September 9, 2018: North Korea held its parade to celebrate the 70th anniversary of the founding of North Korea. There were no ballistic missiles in the parade this year. North Korean leader Kim Jong Un has indicated that North Korea will not give up its nuclear weapons. China does not want that and continues to pressure Kim to agree.
September 7, 2018: China is participating, for the first time, in the biannual Australian Exercise Kakadu. This international exercise involves Pacific nation navies so they can familiarize themselves with each other in case there is a need for cooperation to handle a disaster or confrontation. This year the exercise involves 23 warships that will continue working together until the 15th. In April three Australian navy ships conducted a FONOP in the South China Sea. China challenged the Australian ships but were ignored.
September 6, 2018: China has agreed to establish multiple hotlines along their mutual border with India and also between the defense ministries of both nations. This revives previous efforts to establish a hotline. In 2016 China and India have worked out and agreed to details of a hotline for commanders on both sides of the LAC (Line of Actual Control). Also known as the MacCartney-MacDonald Line the LAC is the unofficial border between India and China. The LAC is 4,057 kilometers long and is found in the Indian States of Ladakh, Kashmir, Uttarakhand, Himachal, and Arunachal. On the Chinese side, it is mostly Tibet. China claims much territory that is now considered part of India. There have been hundreds of armed confrontations over the last few years as one side or the other accuses “foreign troops” of crossing the LAC. The agreement fell apart when India went ahead, despite Chinese protests, and expanded its military ties with the United States. China has a history of expecting nations to “do China an extra favor” if they want a hotline arrangement. In the case of South Korea, the hotline agreement did not go into effect until after South Korea cut some of its military ties with Taiwan. A hotline is nothing new for China. There has been one with North Korea since the 1950s. This enabled senior Chinese military leaders to pick up a phone and call their North Korean counterparts to quickly deal with any mutual problems. In 2008 China and the United States approved an agreement for a communications hotline followed in 2011 by a similar agreement between China and South Korea. A hotline like this is quicker and more accurate than waiting for the usual diplomatic channels to be used (and having to depend on the mass media in the meantime.)
September 5, 2018: China was accused of allowing increased trade with North Korea starting in May as satellite photos and ship tracking data showed over 30 North Korean cargo ships visiting a Chinese port in May and June and unloading coal. China would not comment but did accuse the United States of not following through with denuclearization talks with North Korea. Meanwhile, the U.S. is imposing sanctions on hundreds of Chinese, Russian and North Korean firms for violating the North Korean sanctions.
August 31, 2018: In the South China Sea a British warship conducted a FONOPS through waters China claims to control. A Chinese warship and warplanes showed up but did not try to intervene. The British ship did, however, stay at least 22 kilometers from any islands (natural or manufactured) China occupied.
August 29, 2018: In the South China Sea a Filipino frigate went aground on Half Moon Shoal. The ship did not suffer serious damage and was free by the 31st. China claims this area as part of the South China Sea but did not interfere in this situation and praised itself for that.
August 20, 2018: Pakistan has agreed to build a walled and restricted residential area near the port of Gwadar to house half a million Chinese working in Pakistan. The Chinese construction work on the new Pakistani Gwadar port facilities are visible to anyone on the ground or flying by and in 2017 it was noticed that some features of the new port and airport facilities are clearly intended for military use. India has long accused China (despite denials) was planning to use Gwadar as a base for Chinese warships and naval aircraft. Pakistan never had a problem with Chinese military using Gwadar as it helps keep local troublemakers out. Pakistan has assured China that there would be no terrorist violence against Chinese working on upgrading the port of Gwadar and land links north to China. Pakistan is willing to pay a high price to get CPEC (China-Pakistan Economic Corridor) done because it means Pakistan has an ally against Iran and even Western powers that might have some violent disagreement with Pakistan. Best of all China is picking up most of the $55 billion cost. In early 2017 China and Pakistan finally signed the agreement that granted China a 40 year lease on new facilities China is building in the southwestern port of Gwadar. The lease grants China most (over 80 percent) of the revenue brought in by port and free trade zone operations. China usually imports its own workers from China to do most of the work on projects like this. By 2022 China expects to have about half a million Chinese in Pakistan, some of them with their families. The easiest way to provide protection is to have most of them live in a heavily guarded and restricted access area.
Gwadar is a key part of CPEC and it has the misfortune of being in a province (Baluchistan) that does not want to be part of Pakistan. China and the Pakistanis try to ignore this by not reporting on non-Islamic terror attacks on CPEC construction projects. The government has long been accused of suppressing news of tribal separatists in Baluchistan attacking government targets and especially those related to CPEC. The separatists claim they regularly carry out attacks on CPEC construction projects, but most of their attacks are still directed at Pakistani security forces and government facilities.
August 19, 2018: Japan continues to increase its defense budget, now planning to spend $48 billion in 2019. This is an increase from $45 billion for 2017 and is the seventh year in a row Japanese defense spending increased and much of the additional money is going towards ballistic missile defenses and additional ships to patrol offshore areas that China is aggressively claiming. Unlike Taiwan and South Korea, which continued to be threatened by China and North Korea, Japanese defense spending declined after the Cold War ended in 1991. But in 2013 that changed and every budget since then has increased. By 2015 Japan had its highest ever defense budget ever ($42 billion) it kept growing. Most of the recent increases have been to buy new weapons and upgrade existing ones to improve defense again Chinese or North Korean attack. South Korean spending is putting more emphasis on missile defense. Currently, this includes more F-35 stealth fighters, beyond the existing 42. The additional 20 F-35Bs would be for Japanese helicopter carriers and made in the United States. The first 42 are being assembled in Japan. South Korea has ordered 40 F-35As modified slightly for South Korean use. The first of these will arrive in South Korea in 2018 and all will arrive by 2021. South Korea is considering buying another twenty.