China: Die Fast Or Die Later

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September 4, 2016: The Philippines tried to negotiate with China over territorial disputes and that apparently failed. In the last few days the official Filipino attitude towards Chinese aggression has become decidedly hostile. The newly elected Filipino president pointed out that Chinese efforts to claim ownership of the South China Sea by militarizing it with artificial islands on reefs and shoals for small military bases threatened maritime trade for the entire region and could start a major war. Until recently the Philippines had been taking a more conciliatory approach to the Chinese and apparently that did not work. The main point of conflict at the moment is Scarborough Shoal which is 220 kilometers from one of the main Filipino islands (Palawan) and 650 kilometers from Chinese territory (Hainan Island) and according to international law it is Filipino. The Philippines acknowledges that it was vastly outnumbered by the Chinese military. The Philippines had asked the Americans if they would help the Philippines fight to retain offshore areas that are legally Filipino and the U.S. said such active military assistance would only be provided if the Philippines were attacked by China. This is what the Chinese hoped for and why they have always stopped short of actual combat in forcing (or intimidating) other nations out of disputed South China Sea territories. Filipino president Duterte believed the Philippines should concentrate its increased defense spending on security problems at home, like Islamic terrorism, Moslem separatism and the many private militias maintained in the Philippines, especially in the Moslem south. However the thought of “surrendering” to the Chinese was very unpopular with most Filipinos and this change in approach may just be a reaction to that. In any event the Philippines cannot resist Chinese aggression without the backing of some powerful allies, especially the United States. Japan, Taiwan, South Korea and Vietnam have all pledged to resist Chinese aggression in the South China Sea and the Philippines is technically part of that unofficial military alliance. A major showdown is coming.

The American president recently visited China and told his Chinese counterpart that the United States agreed with the new Filipino attitude. China responded publically that it was still their policy to pursue their claims no matter what. While this makes the Chinese leaders popular with most Chinese, it contributes little to calming down the neighbors.

To deal with Chinese aggression nearly all the neighbors have been increasing their defense spending. For 2017 South Korean spending is going up four percent to $36 billion. In Japan it is a 2.3 percent boost. That comes to $51 billion for 2017. 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). Now that has been increased nearly 20 percent for 2017. Most of this is to buy new weapons and upgrade existing ones to improve defense again Chinese or North Korean attack. While the top three spenders are now the United States, China and Saudi Arabia, Japan was usually in the top ten and remains there even through most everyone in South Asia and points east. Since 2010 China, India and Japan are all increasing their already large budgets.

Meanwhile Chinese leaders praise the Chinese military for continuing to modernize. That includes buying aircraft and ships that allow China to threaten distant places rather than just neighbors. What is also disturbing to foreigners is that a lot of this is done without much publicity. For example China built its first Type 901 replenishment ship in the last year. This is the largest (over 40,000 tons) replenishment ship China has produced so far and similar in size and capability to the twelve American T-AKE replenishment ships that are needed to supply a larger American fleet over longer distances. Since 2004 China has quietly put into service eight (so far) smaller (25,000 ton) Type 903s. These were needed to enable small groups of warships (two or three) to join the anti-piracy patrol off Somalia and visit distant places (South America, West Africa, Europe) that Chinese warships have never been to before. The Type 901s would enable larger groups of warships, like an aircraft carrier task force, to operate off the east or west coasts of North America. The Type 901 apparently has a top speed of 45 kilometers an hour (to keep up with a carrier task force) and room topside for two or more CIWS autocannon (similar to the American Phalanx) for anti-missile defense. At least one more Type 901 appears to be planned but the Chinese usually wait until a new ship type has a year or so at sea before more are ordered. In early 2016 China revealed a new, smaller (2,700 ton) replenishment ship for its growing number of island bases in the South China Sea.

Even without a fleet with global reach China is already getting involved in distant wars. The latest example is Syria. China supports the 2015 Russian intervention there and recently offered to provide military training for the Syrian government forces as well as emergency aid for civilians in Syrian government controlled territory. This offer may be in support of efforts by Russia and Iran to create a new military-diplomatic coalition with Turkey to end the war in Syria. While China, Russia and Iran have been allies (often of convenience) for years, Turkey is another matter. Turkey a member of NATO and currently ruled by an increasingly corrupt and undemocratic Islamic political party that is in the process of purging members of rival political parties (religious and secular) from the government and major institutions. However Iran and Turkey reaffirmed, in June that both nations were dedicated to dealing with Sunni Islamic terrorism, especially in Syria. Russia mainly wants something resembling an end to the fighting in Syria so it can declare victory and go home. This temporary Iran-Turkey-Russia-China alliance could impose peace on Syria, mainly in the name of destroying ISIL and related Sunni Islamic terror groups in Syria. But Islamic terrorism, both Sunni and Shia, would remain. China is interested in all this because it depends on a peaceful Middle East to guarantee its supply of oil and the ability to sell more goods to the nations there. Plus it gives the navy a good excuse to send warships to the Mediterranean more often.

The Alternative To War

Historically China has preferred to win its disputes with neighbors without calling on the troops. This is still being practiced, although China backed away from trying to work out such a deal with the Philippines or anyone else involved in the South China Sea dispute. But Burma is another matter. Recently Aung San Suu Kyi, the most powerful Burmese politician, came to China in an efforts to negotiate terms for China to restart work on the $3.6 billion Myitsone hydroelectric dam complex in northern Burma. The dam project has been largely shut down since 2011 because of corruption charges (largely true) and armed resistance from local tribal rebels. China said it was willing to make concessions to save the dam project and Burma is seeking the best acceptable (to Burmese) deal it can get. China needs the 6,000 MW of electrical power generated and 90 percent of it will go to China. There are many similar Chinese hydroelectric dam projects in northern Burma as well as new mines and lots of road and bridge building to support it all. Burma is willing to let it all happen as long as there is minimal corruption and misbehavior. That means compensating the local landowners (mainly tribes that have been in the area for centuries) fairly. China, however, wants more than just the electrical power and profits from these investments. China also wants some diplomatic assistance. Details on those negotiations are less likely to be publicized. China is willing to negotiate with Burma and compromise on its unpopular economic activities, mainly in the north. Some concessions are easy to make. For example a major anti-corruption effort has been going on in China since 2012 has resulted in looking for obvious signs of illegal wealth and that would often be jade jewelry or rare and expensive imported lumber used for new homes. Both the jade and the illegal lumber comes from Burma, usually illegally. The smuggling operation is dominated by Chinese because most of the demand is in China. Jade and rare timber no longer have much of a market in China and the collapse in demand is being felt in northern Burma. When it comes to stuff like this, China prefers to negotiate.

Damn Those Koreans

For China even “friendly” neighbors can be a problem. This is most obvious in Korea. Currently the Chinese are furious at the South Korean refusals to halt the expansion of their anti-missile defenses. To coerce South Korea China has apparently loosened the UN sanctions on North Korea it began enforcing in March as part of an international effort to get North Korea to halt its nuclear weapons and ballistic missile program. At the same China recently cancelled some investments that were going to be made in North Korea. China still wants North Korea to halt its nuclear weapons program but it is also opposed to neighbors installing anti-missiles systems. China can’t seem to get any Koreans to do as they are told. Then again, that describes the relationship between China and Korea for over a thousand years.

The Internal Economic Apocalypse

What worries Chinese leaders most is not the border conflicts they have created in the South China Sea and India but rather past mistakes that threaten to destroy China from within. This includes a growing worker shortage and an unsustainable mountain of bad debt. Long term there is a serious problem with a shrinking Chinese work force. While overall population still increases 5-10 million a year (to about 1.4 billion now) the working age population continues to decline several million a year and is now under 900 million. The number of Chinese over 60 increases more than 10 million a year and is now approaching 250 million. The major shifts began in 2014 and will continue for decades because of the “one child per couple” policy adopted in the 1980s to avoid disastrous overpopulation. That worked but recently the policy was modified to allow more children for some couples. The impact of that will not be felt until the 2030s. Meanwhile there will be a growing shortage of workers. As the population ages, all those one child families means there will be more elderly than the economy (and the shrinking workforce) can effectively support. Currently there are ten working age Chinese for every retiree. By 2050, there will only be two for each retiree. At that point, retirees will comprise 30 percent of the population (versus 14 percent now.) Traditionally, children cared for their parents in multi-generation households. That model is dying out and China is faced with huge pension cost increases at the same time they expect their economy to be the mightiest on the planet. But at that point, the largest single government expense will be the care of the elderly, and this will impose crushing taxes on those of working age. Many working age Chinese are worried about this, for there is no easy solution in sight. China tried (in 2013) to relax the one-child policy but the newly affluent Chinese are less eager than earlier generations to have a lot of kids. To make matters worse there is not much in the way of pensions or health care for most of the elderly to begin with. The government recognizes this is a real problem but does not, and will not, have the cash to deal with it. The population shrinkage can be remedied by encouraging more migration to China. That has been happening already and currently at least 20 percent of the population is foreign born.

In the short term there’s an even more serious problem; the potential for economic collapse. This threat was created by two bad policies. The first was the government allowing economic data reporting to be “adjusted” to suit the needs of local (provincial) officials. That was bad enough (and is now being fixed) but during several decades of rapid economic growth this flawed data allowed the state owned banks (which still dominate the economy) to lend too much money. Thus debt in China has reached 280 percent of GDP, nearly three times what it was a decade ago. Worse, much, if not most of this debt consists of loans that the borrower cannot repay, or not repay in a timely fashion. This threat, more than the South China Sea dispute, is what keeps Chinese leaders up at night.

August 30, 2016: In Bishkek, Kyrgyzstan a suicide car bomber attacked the main entrance to Chinese embassy, killing himself and wounding three embassy staff. The identity of the bomber has not been revealed yet but is expected to be Uighur (ethnic Turk separatists from northwest China). Uighur violence inside China has been shut down almost completely after several years of trial and error. But many Uighurs, who are nearly all Moslem, have fled China and some have joined Islamic terror groups like ISIL (Islamic State in Iraq and the Levant). It is feared that Uighurs may go after Chinese officials and investments in Central Asia. While Islamic terrorists have not had much success establishing themselves in largely Moslem Kyrgyzstan, Chinese traders and investors have been welcomes by the largely Turkic Kyrgyz. Since the 1990s China has been more of a presence here because Kyrgyzstan and the other former Soviet stans of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) wanted someone to help with the economy and discourage the Russians from trying to dominate the region like they have done since the 19th century. The stans were very receptive to Chinese diplomatic and economic cooperation. This bothered Russia, but not to the extent that threats were made, as was the case with the former Russian possessions to the west (like Ukraine). The stans also have a problem with never having been democracies. When the Russians conquered them in the 19th century the local governments were monarchies or tribes. When the Soviet Union collapsed in 1991, locals who were former Soviet officials held elections and manipulated the vote to get themselves elected "president for life." But many people in the Stans want clean government and democracy, as well as continued independence from Russia. China is no help with that because the Chinese prefer dictators. But China does offer more economic opportunities and protection from what happened to Ukraine and Georgia.

August 25, 2016: For the first time a senior officer on active duty (62 year old army general Wang Jianping) was arrested (along with members of his family) for corruption. Wang was a senior staff officer with the Central Military Commission, the organization through which the Chinese Communist Party runs the military. Many generals have been arrested for corruption in the last few years but all were retired. However several generals on active duty are known to be under investigation for corruption and one recently committed suicide, apparently fearing he would soon be arrested. We know this because the state-run mass media announces, rather quietly, the growing number of senior military officers being arrested for corruption. Some of the recent arrests indicate that no one is immune if they have betrayed their role in making Chinese armed forces more effective. While China has failed many times to suppress corruption in the military, as had the preceding imperial governments for thousands of years, the current effort is different. Past anti-corruption campaigns were carried out quietly since the biggest offenders were senior officials, most of whom were immune because of political connections. Chinese military corruption in the past is often well documented but it was never something the government wanted publicized. That has changed and the current media effort is providing lots of historical examples of how Chinese troops were defeated because they had been crippled by corruption. This sends an encouraging signal to most Chinese who understand that this is a rare public (if indirect) admission of how corruption cripples the economy in general and in ways that most Chinese suffer from. Unfortunately the “strenuous efforts” to reduce corruption in the military have been going on since the 1990s and the corruption, while reduced, still exists and, according to secret police reports, the actual combat capabilities of the military are still crippled by corruption. While these reports are secret, the evidence of continued military corruption is not. Those in the military (or who recently left) as well as civilians working for or with the military have all seen the corruption in action and know it is still there. The government controlled mass media keeps visible examples (avoidable accidents and blatant theft or abuse of power) from being widely distributed but cell phones and the Internet get a lot of that stuff, especially when there are pictures and video available, wide attention. In response the government publicizes its anti-corruption measures in the military.

August 14, 2016: The Philippines sent a trusted emissary to China in an effort to deal with the South China Sea dispute. The emissary was former (1992-98) Philippine president Fidel Ramos who tried to arrange formal negotiations between China and the Philippines over territorial disputes in the South China Sea. After several days of discussions in China the Filipino team reported that a proposal to separate discussions over the territorial dispute be kept separate from talks about Chinese investments in the Philippines was listened to but there was no response. China always links economic investments with other objectives and did not make an exception for the Philippines. This visit was ultimately considered a failure by the Filipino government and apparently led to a more aggressive Filipino attitude towards Chinese claims.

 

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