The government admits that it is still having problems with covid19, and so much of the workforce is still under quarantine, that economic growth estimates for 2020 have been revised to zero or negative growth for 2020. GDP declined 6.8 percent during the first three months of 2020. Before the virus hit at least six percent GDP growth in 2020 was expected. Despite the economic problems, the 2020 defense budget will increase by 6.5 percent, to $179 billion. In 2019 the increase was 7.5 percent.
While the military gets more money, it is at the expense of repairing the economic damage done by the months of covid19 related quarantines. Three decades of rapid economic growth was accompanied by a lot of corrupt activity. Before the covid19 crises, China hoped to maintain GDP growth of at least six percent while at the same time continuing to safely reduce (“deleverage) the huge number of bad loans local governments and corrupt banks have taken on since the 1990s. That plan is less viable now.
The economic decline began in 2018 and could be measured in many aspects of economic activity (production, orders for raw materials, finished goods or construction and so on) and sentiments (of people running the economy and consumers). Chinese stock markets were down over 30 percent by the end of 2018, and for the first time in three years, profits of industrial firms took a dive. These trends continued into 2019, made worse by a trade war with the U.S.and economic fears over the fate of Hong Kong. The Chinese consumer grew more cautious. Retail sales were down overall, despite increased use of online sales via Alibaba (the Chinese Amazon). Chinese have been hearing the rumors or witnessing the realities of economic problems, such as corruption, bad loans, foreign firms leaving, labor unrest, unreliable economic statistics and so on, and have noted the government has no quick fix, or maybe no fix at all. Then came covid19 at the end of 2019. One reason local (in Wuhan) officials tried to conceal and downplay the virus threat was the proliferation of bad news since 2018 and the national government was demanding that local officials do better or else.
Things did not get better and after months of covid19 damage, the economy is in much worse shape. Before the virus hit thousands of Chinese firms were faced with bankruptcy and there was insufficient lending capacity by Chinese banks to prevent bankruptcies and loss of jobs. So far the government has not risked widespread bank failures by ordering new loans anyway. In part that is because the government has also decided to risk losing the financial benefits of Hong Kong by canceling its special status. It was that special status and lack of corruption that brought many foreign banks, and other businesses to Hong Kong. With Hong Kong operating like the rest of China, there is much less reason for foreign firms to remain in Hong Kong.
The process of Hong Kong losing its special status accelerated recently when the U.S. officially declared that Hong Kong’s favored status as a trusted trading partner would end if China proceeded with implanting the new laws. The threat of those new laws led to over a year of large protests in Hong Kong. In effect, America confirmed that if China eliminated the Hong Kong's autonomy which China had “guaranteed” would last until 2047, then Hong Kong would become another part of a China that the U.S. and most other nations consider hostile and not to be trusted. Most of the protestors reluctantly agree with this assessment. Many wealthy Hong Kongers have already made arrangements (dual citizenship and assets moved overseas) to leave. Less affluent Hong Kongers are looking for nations that would accept several hundred thousand highly-skilled, well-educated and very pro-democracy Hong Kongers. China is trying to make the best of this by offering financial incentives to prominent Hong Kongers to go along with the loss of autonomy. There have always been some Hong Kongers willing to try that, but most of the population dreads becoming part of a China that is increasingly unpopular with Chinese in general. Destroying Hong Kong's autonomy and economic benefit, which is a loss to all of China, is seen as yet another example of the CCP (Chinese Communist Party) sacrificing the welfare of all Chinese in order to maintain the power of the CCP. Just another increasingly corrupt dynasty according to Chinese history, and CCP leaders as well as most Chinese know how this usually ends.
China is concerned that most other East Asian nations did a much better job of dealing with covid19. The very effective response of Taiwan was particularly embarrassing, as Chinese pressure in the UN has kept Taiwan from belonging to international health groups, like WHO. That makes it more difficult for the rest of the world to learn how Taiwan was more effective in dealing with covid19. Local allies of Taiwan, like Japan, South Korea, Singapore, Vietnam and so on are able to get Taiwan virus tips quickly because all these nations are united in confronting Chinese aggression in the region. Covid19 is seen as just another problem with being a neighbor of China.
Compared to China and North Korea, South Korea has suffered a much lower death rate for people infected. China admits to a death rate of three dead per million people while South Korea has a well-documented rate of five dead per million people. China claims only 58 cases per million people while South Korea has 221 per million. During the first two months of 2020, China seemed to accurately report cases and deaths and that trend indicated an infection and death rate two or three times that of South Korea. But after February China suddenly reported a sharp decline in cases and deaths. This was contradicted by many reports from people living in China. Such reporting was declared a crime and there is now much less of it. The effectiveness of Taiwan in dealing with covid19 is even more embarrassing. So far Taiwan has 19 cases per million and 0.03 deaths. Singapore has had 5,624 cases per million and four deaths per million.
One very practical reason for the Chinese strategy was the realization that the health problems caused by covid19 were minor compared to the damage done by shutting down the economy in areas where the virus was active. While people want to go back to work, they are not happy with going back to work while the government insists there is no virus risk at all. That is not true and while healthy people are able to resist the virus as they would the annual arrival of Influenza, covid19 is particularly lethal to the elderly and anyone with serious health problems. In China respect for the elderly is an important part of the culture and the government policy. The government is seen as willfully sacrificing the elderly for political and propaganda reasons. The government ignores this while searching for ways to improve control over the population. It does not help when more Chinese realize that the CCP does not “serve the people” but the other way around.
This bad image of the Chinese leadership is reinforced by the experience of neighbors like South Korea, Taiwan and Singapore. This experience also displays how bad CCP rule can get because North Korea has a similar communist government, but one that is even less concerned with the welfare of its people. As a result covid19 in North Korea has become a very real hazard to Chinese efforts to deal with the virus. China has evidence of North Korean smugglers or legal Chinese visitors to North Korea coming back infected and reviving the spread of covid19 on the Chinese side of the border.
Chinese territorial claims on Indian border areas, and much of northeast India, have been on hold for several years while China deals with economic and domestic problems. The longer China is distracted the better for India, which is desperately trying to close the economic and military gap between the two countries. China spends nearly four times as much on defense compared to India. This is so because China has an economy (GDP) that is nearly five times larger.
Indian emphasis on economic growth since the 1990s has paid off because that growth has been spectacular lately, with GDP nearly doubling in the last decade from $1.7 trillion to the current $2.9 trillion. This made India the fifth largest economy, recently surpassing Britain and France. The rest of the top five are the U.S., China, Germany and Japan. Chinese GDP growth is slowing although in the last decade it more than doubled from $6.1 trillion to $14 trillion. But for once the annual Indian GDP growth has been faster than in China, where GDP growth rates have been declining over the last five years. Covid19-related economic damage has brought an end to over three decades of spectacular economic growth in China. Compared to 1989 the Chinese GDP is now over fourteen times larger. In that same period the U.S. GDP doubled.
The distraction is less of a problem for China because now the CCP has to deal with growing internal dissent from the Chinese unhappy with CCP mismanagement of just about everything. Humiliating India with border incidents shows Chinese that the CCP is protecting them, sort of. Since the 1980s economic reforms, more and more Chinese came to believe that maybe the CCP wasn’t so bad after all. While the Chinese economy enjoyed spectacular growth, the rest of the world did not. In the West and India economic growth stagnated because of increasing corruption and bureaucracy. China seemed immune to those impediments. Such was not the case. Over a century of delayed economic and social progress became possible with the return of free-market economics in the 1980s. This is a common historical phenomenon that eventually ended and the CCP liked to encourage the idea that the end would not come so soon. But now it is showing up. China’s economic current edge will fade more slowly. In the meantime, that efficiency edge is still there in many areas. One of the most frightening to Russia and the U.S. is the superior ability of the Chinese to design and build new warships. This year the number of Chinese warships (about 360) will exceed that of the United States (about 300). The Americans still have the edge in tonnage and crew experience but the Chinese are hoping to close those gaps in the next decade or so.
Russia has more serious concerns. Russian defense industries continue to have problems developing new technology or even manufacturing older items reliably. This problem is very visible in the Russian space program. The list goes on and on. Russia plays down all these problems but the net result is they have very little locally produced stuff to replace their Cold War designs. Worse, China is now producing improved and more reliable versions of those Cold War era weapons, along with new Western tech (like large, missile-armed UAVs) that Russia cannot master.
In the late 1980s, the Soviet (Russian) Navy was the second largest in the world and largely consisted of new ships, many of them nuclear powered and equipped with a formidable array of weapons. All that is largely gone now. China has left its Cold War era ship designs behind and is copying Western designs. So are the Russians, but not as competently as the Chinese. Nor can the Russians build dozens of new warships a year and have them operate reliably. American intel collecting aircraft, ships and satellites monitor sea trials for new Russian and Chinese ships, and note that the Chinese are doing much better. Now the second largest fleet in the world is Chinese and it is looking to be a far more dangerous adversary than the Soviet fleet ever was.
May 27, 2020: In Hong Kong, large scale demonstrations resumed, despite the remaining covid19 restrictions and government threats to use more force against such “illegal” activities. Today nearly 400 demonstrators were arrested as riot police were more active than usual in using force to punish and discourage the locals protesting the imminent loss of Hong Kong autonomy.
May 23, 2020: In the south (the Indian-Tibet border) in the Ladakh region, India accused China of again trying to block the movement of Indian troops in an area that both nations claim. This is the third such incident this month. This time there was no violence. China believes its strategy of constant unarmed pressure along the border will eventually persuade India to surrender disputed territory.
Until now that seemed to be working. What is different in 2020 is that the Indians are using Chinese tactics against the Chinese. This happened once before in 1962. Actually it happened by accident as Indian troops crossed the McMahon Line, which India insisted was the border. The Indian troops set up a new outpost and refused to retreat. The Chinese attacked and inflicted an embarrassing defeat.
Two things are different now. First, both nations have nuclear weapons and second, since 2014 the truth of what happened in 1962 was finally revealed to the Indian public in 2014. The detained and accurate Indian Henderson Brooks–Bhagat report on the 1962 war was kept secret because it did not reflect well on Indian military and political leadership. Those reading the report noted this and understood why the report was still classified. Eventually, someone studying official documents of the era and interviewing key participants found that the classified report existed. The once-secret report revealed that the Indian Army accidentally built a new border post on the Chinese side of the McMahon line in late 1962. While both nations disputed the exact location of this line both, at the time, agreed to honor the line until negotiations could settle the issue. Then the Indian Army crossed it, apparently by accident, built a border post and refused to withdraw when informed that by any calculation they were on the wrong side of the line. The Indian generals, who knew their troops were in Chinese territory, advised the Indian government to authorize the use of more force to maintain the new border post. The army officially insisted at the time that the new post was on Indian territory.
The Indian political leaders authorized the army to reinforce the surrounded border post and the Chinese responded by moving more forces forward. Despite the knowledge that the Chinese had moved superior forces to this mountainous and freezing area, the Indian Army went along when their politicians ordered the Chinese to be pushed back. An Indian brigade was moved into position, but the troops had little ammo, cold weather clothing or medical supplies. At that point, India had 12,000 troops in the area while China had brought forward 80,000. In a month of fighting (starting on 20 October) India lost 7,000 troops (57 percent prisoners, the rest dead or missing) compared to 722 Chinese dead. China declared a ceasefire that India accepted. China actually advanced in two areas, a thousand kilometers apart and ended up taking 43,000 square kilometers of Indian territory.
The source of the 1962 war and current border tension goes back a century and heated up when China resumed its control over Tibet in the 1950s. From the end of the Chinese empire in 1912 up until 1949, Tibet had been independent. But when the communists took over China in 1949, they sought to reassert control over their "lost province" of Tibet. This began slowly, but once all of Tibet was under Chinese control in 1959, China had a border with India and there was immediately a disagreement about exactly where the border should be. That’s because, in 1914, the newly independent government of Tibet worked out a border (the McMahon line) with the British (who controlled India). China considers this border agreement illegal and wants 90,000 square kilometers back. India refused, especially since this would mean losing much of the state of Arunachal Pradesh in northeastern India and some bits elsewhere in the area.
China and India have still not resolved the border dispute and there continue to be skirmishes. The information found in the classified Henderson Brooks–Bhagat report were not unknown. Several historians and analysts had put together the basic facts by the 1970s. But the Indian government continued to refuse to acknowledge that Indian errors were largely responsible for the war and the Indian defeat. With the Henderson Brooks–Bhagat report now public, it’s difficult for India to cling to these self-serving myths. Already government officials are starting to discredit the report, which just goes to show how history does indeed try to repeat itself. China is depending on this while India is trying hard to avoid repeating themselves.
May 22, 2020: China reported no new covid19 cases (people ill with the virus) today, the first time that has happened since the virus began in late 2019. There were still over 30 people with the virus but not feeling ill (asymptomatic). There are still over fifty million people quarantined and infected people are still getting into the country as Chinese return to China.
May 21, 2020: China will impose the new National Security Law in Hong Kong and the plan is to make it official by the end of May. This was proposed a year ago and led to a year of massive protests that were only diminished by the arrival of covid19. That enabled the national government to arrest over a dozen prominent supporters of the protests. China is now planning to eliminate the special status of Hong Kong despite the risk of destroying the usefulness of Hong Kong as an international financial center.
May 18, 2020: While the stricter 2017 economic sanctions have cut most North Korean foreign trade, the cuts in China trade have been somewhat less. China has always been North Korea’s largest trading partner and before the 2017 sanctions China accounted for over 80 percent of North Korean foreign trade. Now it is 95 percent. Even with that the sanctions still hurt. Trade with China was up 15 percent in 2019 to $2.84 billion after hitting an all-time low in 2018. Most (over 91 percent) of the 2019 trade exported to China. That China trade was down a third during the first two months of 2020, compared to 2019, because of a border shut down to deal with covid19.
A major reason why the 2017 sanctions were so effective was that China agreed to cooperate. In the past, China tolerated a lot of smuggling and illegal trade with North Korea. Not so much after 2017. China wants North Korea to concentrate more on economic reform and less on ballistic missiles and nuclear weapons. One of the legal imports from China is food and North Korea will need a lot of it in 2020 because problems (natural and manmade) with agriculture in the last year resulted in North Korea producing 16 percent less food than it needs to feed its population. Spending remains high for missile and nuclear weapons and this has produced a severe shortage of foreign currency for essential imports, like food. In response to this North Korea has resumed offering government bonds, which can only be purchased using foreign currency. The government wants its legal entrepreneurs (the donju) to buy these bombs.
May 12, 2020: China is again imposing covid19 restrictions in cities near the North Korean border. Some of the new cases were people who had recently been in North Korea legally or illegally. Because many Chinese and North Korean smugglers regularly cross the border secretly it has been impossible to completely close the North Korean border. China and North Korea have similar problems along their Russian borders. Covid19 is still very active in Russia.
May 9, 2020: In the south (the Indian border) in the Ladakh region about 150 Chinese and Indian soldiers fought with fists and blunt instruments for the second time this week. Ten soldiers were injured. Four days earlier 250 Indian and Chinese troops had a similar battle, which involved more rock throwing as well. There were over twenty troops injured, most of them Chinese. For years Chinese troops have often crossed the border in the Indian state of Ladakh (northwest India). Chinese troops are seeking to halt the construction of a new road on the Indian side of the border. China claims the road is being built on territory claimed by China. China has often sent in troops and civilians to “protest” Indian activities on the Indian side of the border when anything happens on terrain China claims. The diplomats have been unable to settle the dispute and these latest clashes continue because neither side will back down.
May 4, 2020: China is demanding that Vietnamese and Filipino fishermen comply with a Chinese ban on fishing in the South China Sea from now until August 16th. Since the 1990s China has only enforced the ban on Chinese fishing ships but this year is threatening to arrest Vietnamese and Filipino fishermen who do not comply. The purpose of the ban is to allow the fish to breed and maintain their numbers. Overfishing was caused by China which subsidized a large ocean going trawler fleet which often fished illegally in foreign waters. Chinese trawlers still do that as far away as South America and Africa. But the first target of this illegal fishing were EEZ (Exclusive Economic Zone) waters that extend 380 kilometers from the coasts of nations bordering the South China Sea. When these nations sought to drive the Chinese poachers away China began sending warships in with the poachers to deter local authorities from interfering. The EEZ concept was established by an international treaty that China signed. In the case of the South China Sea China claims that the EEZ treaty does not apply because the South China Sea is traditional Chinese territory and China is reasserting ownership. There is no historical evidence for this claim but China insists it is true and is increasingly threatening to use force to keep the legal owners of EEZ waters out. Vietnam and the Philippines are calling on all EEZ nations to help prevent China from violating the EEZ agreement.
May 1, 2020: In North Korea, there has been another outbreak of African Swine Fever, which is highly contagious for pigs and other farm animals. This apparently came from South Korea. The North Korean government is trying to isolate the outbreak before it spreads further. These measures often fail because the farmers are so poor and desperate that sick animals are not destroyed (burned) but butchered and the meat sold in local markets or consumed by the farmer’s family and friends. As a result, the livestock disease had spread by mid-May to at least two other provinces. This was in spite of growing government efforts to contain the problem as happens in South Korea and China.
China is a source of similar animal killing disease. In 2019 farmers on the Chinese border suffered huge livestock losses from an outbreak of swine flu. Like human flu, this disease is easily spread (via the atmosphere) from pig to pig and although some pigs might survive they must be destroyed (killed and buried) to prevent the spread of the disease. The same tactics are used to halt the spread of Swine Fever. It is difficult to get farmers to cooperate because pork is a major source of meat in North Korea and desperate farmers will butcher and eat or sell the meant of diseased pigs and not kill and bury swine that survive. That means the epidemic keeps spreading. Earlier in 2019 North Korean farmers suffered heavy losses from another outbreak of hoof and mouth disease. This one came in via China, which can afford to cope with these outbreaks. North Korea cannot, especially not just now. Worse, the first cases, which were near the Chinese border, where the virus can get across the rural border areas because it is airborne. Farmers tried to hide the flu by insisting that the cattle deaths were from malnutrition. Thus this early misdiagnosis led to the rapid spread of hoof and mouth. Most (about 80 percent) of North Korean farmers use cattle for plowing and, very rarely as a source of milk and meat (which fetches a high price on the markets) but cattle that die from hoof and mouth must be buried or burned for the dead animal harbors the virus. Killing cattle without government permission is a capital crime in North Korea thus an uncontrolled hoof and mouth outbreak is a potential disaster. Outbreaks of these farm animal diseases are common throughout the region but North Korea suffers the most because they lack the resources to quickly contain the diseases. All their neighbors can deal with the problem and control their losses. North Korea cannot afford the losses and these diseases are more a disaster than just a nuisance in neighboring nations.
April 30, 2020: The Philippines protested China declaring two portions of the Filipino EEZ. China declared an artificial island built on Kagitingan Reef (part of the Kalayaan Island Group) is now the Nansha district while Woody Island (in the Paracels) is now the Xisha District. An international tribunal ruled against China and affirmed that Chinese claims in the South China Sea violated existing treaties that China had signed as well historical precedent that sided with the Philippines.