China: Disappointing, Not Unexpected And Now Tested

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November 10, 2021: China believes it can survive its real estate bubble that is now in the process of collapsing and crippling the economy along the way. The scope of the problem is vast. The pictures of Chinese ghost towns have been appearing for years and they are real. Over-building by corrupt local officials allowed this to happen and currently some 20 percent of Chinese apartments and houses are empty. That’s 65 million housing units, most of them recent construction and never occupied. Many are concentrated in over fifty Ghost Cities that are in parts of the country that are still largely rural and not attracting much of the investments and new companies that prefer coastal regions, especially in the south near Hong Kong.

In the last decade the average growth of property values is about 400 percent. It is ten times, or more, higher in cities along the coast where most of the new industry and jobs are. The government knows that Chinese, and most East Asians, have a higher savings rate than Westerners. In the U.S. housing down payments under ten percent while in China they are 40 percent. That’s twice the highest average down payments in the West (Germany) and high enough to persuade home owners, and the mortgage lenders, to be patient and ride out an economic crisis. Real estate activities constitute nearly 30 percent of the Chinese GDP and any short-term property losses are being covered, in the long terms, by continuing high levels of exports. If China continues to enjoy large trade surpluses, high consumer savings rates and jobs for everyone, they have a viable escape plan. The Chinese plan is not invincible. Japan went through a similar real estate disaster in the 1990s that crippled the Japanese economy to an extent it has still not recovered from. That slow recovery was partly due to the growing Chinese economy whose exports took business away from Japan. Then there is the population decline (low birth rate) that was already a factor in 1990s Japan and is getting worse. China has the same problem and the decline is beginning.

The government believes it can cope, because it must. Failure is not an option because that means another revolution or at least a radical change in the current form of government as shown by Chinese history. Paying attention to Chinese history is respected and it is still a popular tradition to base major decisions on what has happened in the past.

Some of those historical examples are casting doubt on the Chinese plan to survive the current real estate crisis. The largest problem is corruption at the provincial and local level. Over the last decade there has been a major effort to purge the false reporting from national economic statistics. The false data problem is not gone but at least it is recognized. This was painful because it revealed that past economic growth was more uneven and less than everyone believed. Many foreign economists had figured this out but now everyone knew.

There is a similar problem in the military, which is now recognized as one of the largest modern military forces in the world. But how effective would they be in combat? Chinese forces have not been in a shooting war since 1979, when they attacked Vietnam and got the worst of it. China offered Vietnam an attractive peace deal (no lost territory) if Vietnam kept quiet about how the Chinese units performed. It was impossible to keep details of the Chinese defeat quiet but it was suppressed long enough to keep it out of the global mass media.

The government continues to monitor military performance independent of the military leadership and the results are disappointing but not unexpected. Building a large modern force is one thing, turning it into an equally effective force is a more elusive goal.

Another area of Chinese success has also received unwelcome scrutiny, not by Chinese officials but by the foreigners who are victimized by it. To put it bluntly, China has stolen huge amounts of tech from the West and other Asian countries and continues to do so. While there has been some push back (trade sanctions) on the economic crimes, the IP (Intellectual property) theft is still not addressed much less fixed.

November 3, 2021: The American Department of Defense released a report confirming data about the Chinese military that has been known for some time. The Department of Defense acknowledges that the Chinese Navy is larger, in terms of warships, than the U.S. fleet. Since World War II the United States has had the largest fleet. The Soviet Union could claim a slightly larger fleet at the end of the Cold War in the 1980s, but that was later confirmed as a myth because Russia was reporting many ships as operational when they were not. That is not the case now, in which the Americans have more problems keeping ships operational and not able to build or repair them as quickly and efficiently as China. As for land forces, China has long had the largest army in terms of personnel. Those numbers were cut by about 50 percent in the last three decades as the army modernized. The U.S. ground forces still have an edge in new tech and combat experience.

China has the third largest air force in the world but it is still replacing a lot of older (Cold War vintage) aircraft and paying for the huge cost of training combat pilots.

The Chinese military has come up with some novel ideas for Information War, space operations and uses for ballistic missiles. Some of those clever ideas may be getting a realistic test. Three weeks ago, commercial satellite photos recently revealed that China had built target images in a Central China missile test area. The three images were the same size as a Nimitz class carrier and two Burke class destroyers that are typically part of a carrier group. The Chinese targets are done in detail and involved the use of metal, which may be crucial for testing a terminal target guidance system for the DF-21D ballistic missile, which is supposed to be capable of hitting a carrier at sea but has never been tested doing anything like that. The new targets appear to be mounted on railroad car wheels that can use short stretches of rail tracks to simulate a moving carrier. If the missile can hit a moving target, it must be taken much more seriously.

Earlier in 2021 the U.S. Navy suspected that Chinese use of some of its DF-21D ballistic anti-ship missiles during a training exercise in August 2020 proved the missile was a real threat. The missiles were launched but were not aimed at any test target so it was unclear if there is yet any proof that these missiles can hit a moving ship on the high seas. In November 2020 Chinese media reported the same thing, that China had test fired several of its DF-21D ballistic missile from mainland bases into the South China Sea and nearby ocean areas. China claims that one of these missiles hit a moving ship. No comment from Western intel agencies that usually monitor these missile tests. The DF21D was designed to hit American aircraft carriers. Since 2006 there have been stories (in the West) about how China was working on targeting systems for its ballistic missiles that would enable them to seek out and hit aircraft carriers. Such sensors would use infrared (heat seeking) technology. This sort of thing had been discussed for decades, but China appeared to be putting together tactics and missile systems that could make this work. The key was having multiple sensor systems that could find the general location of the carrier, before launching the ballistic missile, like the existing DF-21, with a range of 1,500 to 2,100 kilometers. By 2010 the carrier killer missile was identified as the DF-21D. Since then, this weapon has been tested at least once before, in 2019, when six were fired. The Americans did not release any data they might have had about how successful these 2019 tests were. During periods of military threat, like the Cold War, and current revival of those tensions, it was common for the military on both sides to claim the other side had awesome capabilities that did not exist. The claims were meant to motivate governments to provide lots of money to develop defenses against the claimed superweapons of the other side.

November 2, 2021: Railroad traffic between China and North Korea has resumed. For most of 2021 there were rumors that the rail traffic would soon resume but now it has finally happened. Until now the only freight movement between North Korea and China or Russia was moved by boat. Last week there were indications that the rail lines were to open soon because Chinese exporters were suddenly stockpiling goods near the North Korean border that were normally exported to North Korea. Yesterday those goods were loaded onto trains that crossed the bridge to North Korea before the end of the day. The 22 month long North Korean shutdown of cross border trade is over. North Korea says that they have defeated covid19, enabling the border to reopen. North Korea has not defeated covid19 and lockdowns of movement within North Korea are still in force. China is still suffering outbreaks of covid19, some of them near the North Korean border. But China has vaccinated 80 percent of their population and still demands that visitors be vaccinated and submit to covid19 tests and often a quarantine period as well.

North Korea may have decided that the lockdown of trade and much of their economy was doing more damage that covid19 could. Decisions had to be made and convincing explanations created. That was not going to happen unless the foreign trade was resumed. Shortages of fuel, fertilizer, and spare parts to keep farm machinery going have contributed to widespread food shortages and the reappearance of starvation deaths, something not seen since the 1990s. Life must go on if the current North Korean government is to survive. In China there are still local lockdowns when a covid19 case is discovered and there are more temporary factory closings and unemployed workers.

The border reopening means thousands of legal North Korean workers in China can return home. Many of these workers were often idle because the Chinese factories they worked in had no orders. This year has been a lot busier with some North Koreans finding themselves working on clothes for South Korea. Back in North Korea any association with South Korean fashion or culture is a criminal offense. North Korea is unlikely to complain about what their foreign workers produce because North Korea taxes their wages at rates as high as 80 percent. Even with that the North Korean workers make more than they would back home and eat better and have better living conditions, especially regular heat, and electricity. A labor shortage in some parts of China for some jobs has led to wage increases for North Korean workers, who still get paid less than Chinese.

Recently there have been blackouts in some factories because mismanagement of anti-pollution programs has led to widespread shortages of coal for power plants. The blackouts are less frequent and better managed in China. The North Korean workers don’t seem to mind because the workload has been heavier than it has been for years with many workers enduring mandatory overtime.

November 1, 2021: In central Africa (Mali) three Chinese captured by Islamic terrorists on July 17th escaped their captors and were able to contact some soldiers today. The three men were kidnapped in southwest Mali, near the border with Guinea, by armed men who attacked a road construction site and kidnapped three Chinese and two Mauritanian employees of the Chinese firm that is building the road. The raiders destroyed heavy equipment and stole five pickup trucks to carry their captives and loot. The largest Islamic terror group in Mali later took credit for the attack and released videos of the captives to obtain a large ransom. Ransoms are less likely to be paid for foreign captives because it just encourages more kidnapping. China was pressuring Mali to find and free the captives even though ransom negotiations were still underway. That was one incentive for Chinese captives to escape, even if there was a risk of injury and recapture.

October 30, 2021: In West Africa (Republic of Congo) an independent (foreign) audit of government contracts with China found serious problems and recommended Congo renegotiate the 2008 mineral deal it signed with China. That 2008 deal is sometimes called the “minerals-for-infrastructure agreement” or “The China Deal”. It is nominally worth $6.5 billion. The deal took over a year to negotiate. China agreed to finance the building of transportation infrastructure in Congo. China would also help construct an electrical grid and build electrical generating capacity. Improving water supplies is also part of the arrangement. The financing, however, is "resource-backed." The Congo's copper and cobalt reserves were used as collateral backing the financing. That aspect of the deal was identified as a major problem. Congolese critics early on pointed out that the deal was simply not fair to Congo as it was economic imperialism. The revenue split between Congo and one of China's main mining concerns is 32 percent for the Congo, 68 percent for China.” Two Chinese state-owned-enterprises (SOEs) Sinohydro Corp (SINOH-UL) and China Railway Group Ltd would build roads and hospitals. Profits from Congo's Sicomines cobalt and copper joint venture with China would fund the infrastructure. By mid-2009 media sources estimated that the deal was worth nine to ten billion dollars in the long run, and China was coming out way ahead. This defective agreement was the work of former president (dictator) Joseph Kabila and his corrupt government. In 2021 Congo’s president is Felix Tshisekedi, who heads a political coalition that removed Kabila supporters from key positions in government ministries. With that the China Deal was open to thorough scrutiny and it looks like the critics who spoke up in 2008 were right. In 2017 the Kabila government agreed to a secret amendment to the China Deal that accelerated payments to Chinese mining financiers and slowed the pace of infrastructure investment. In other words, China got money before doing required construction. The 2017 amendment was such a blatant form of corruption that it played a major role in getting Kabila out of power. certainly is. The new audit alleges China has invested less than one billion dollars in infrastructure projects, which is about half of what should have been invested by 2021.

October 29, 2021: China is believed behind the recent promotions Kim Yo Jong has received. She is now in charge of diplomatic national security affairs in North Korea. In September Kim Jong Un promoted his younger (34-year-old) sister Kim Yo Jong, to the State Affairs Commission, a group that includes her older brother and is often consulted by Kim Jong Un for advice on how to proceed with key decisions. This promotion is seen as confirmation that Kim Yo Jong is now the chosen successor to her brother. Kim Jong Un apparently has three children aged between 4 and 11. Because of that his able and trusted younger sister has been seen as a potential heir. Kim Yo Jong stepped up when her brother underwent heart surgery in early 2020 and was out of action for several months. Kim Yo Jong was decisive and suitably vicious in the Kim tradition. During that period, she received several promotions and was portrayed as a senior official who was making a lot of decisions. Now she has more promotions and created a better relationship with China.

October 28, 2021: China officials met in Iran with diplomats and economists from Uzbekistan, Tajikistan, Turkmenistan, Russia, and Pakistan. Their Iranian host wanted to discuss the risks of total collapse in Afghanistan and a surge of refugees fleeing the new IEA (Islamic Emirate of Afghanistan) government. Iran is the neighbor with the most to fear from this because Iran has a 921-kilometer border with Afghanistan and feels an obligation to help protect the 20 percent of Afghans who are Shia and long the victim of Taliban violence as well as attacks by Sunni Islamic terror groups like ISIL (Islamic State in Iraq and the Levant). Even if the IEA stabilizes the situation there will still be the problem of Islamic terrorist groups able to operate more freely in Afghanistan and able to launch attacks on the neighbors, as some of these terrorists are already doing inside Afghanistan. While many of the neighboring countries revel in the departure of the Americans, they do miss what the Americans were doing to maintain stability in Afghanistan. The Iran conference released a statement supporting the Afghan people and calling on the IEA to form a more inclusive government that would make it easier for foreign aid donors to return to Afghanistan. Most of the neighbors are awry or hostile towards the IEA and bracing for the worst. The meeting in Iran did not include the IEA, which is perhaps just as well because some of those in attendance agreed that the IEA government could collapse in a few years and the neighbors had to prepare on how to deal with that disaster, or opportunity depending on how the neighbors react.

October 27, 2021: In the South China Sea c ommercial satellite photos revealed that the 200 Chinese paramilitary naval militia trawlers remained in the South China Sea areas where international law recognizes Filipino ownership. Since March the Chinese claims were being enforced by several hundred Chinese ships that appear to withdraw when challenged but are dispersing momentarily before showing up in another nearby Filipino reef. The satellite photos document the Chinese tactics. Several Filipino reefs in the Spratly Islands were used for this, which appears to be a pre-planned maneuver designed to deceive Filipino patrols and international media scrutiny.

The latest escalation is the use of large (often hundreds) numbers of ocean-going fishing boats. This began with Julian Felipe Reef, which is 324 kilometers west of Palawan, one the Filipino main islands. The reef is part of the Spratly Islands. The nearest undisputed Chinese territory is 1,148 kilometers away. China is using bogus and illegal claims on other South China Sea islands or reefs to justify its occupation of Julian Felipe Reef. In this case there is another problem. Julian Felipe Reef was not legally “land” that could be claimed until about five years ago. As happens often in the South China Sea, reefs grow and shrink because of the natural movement of sand. Parts of Julian Felipe Reef had long emerged from the water only during low tide. According to international law, that did not qualify as “land”. There are suspicions that China covertly did some dredging at Julian Felipe Reef to get the permanent sand to show. This is unlikely because commercial satellite coverage of the South China Sea has been nearly constant for over a decade. China has claims on South China Sea territory belonging to six other nations but is concentrating on the Philippines which is seen as the nation with the most to lose and least able to defend itself. That appears to have backfired as all the victimized South China Sea nations have formed a military coalition that many, from Australia to America, Europe and South Asia, have joined with pledges of support as well as sending their own military forces to confront China.

October 21, 2021: Besides the South China Sea China is making large claims on Indian territory, although ally Pakistan, who claims 42,000 square kilometers of Indian Kashmir is theirs and leaves it at that. China claims nearly 140,000 square kilometers of Indian territory, all of it on the Tibet border and 38,000 square kilometers of it already occupied by China. Current Chinese efforts to take possession of this territory have been largely non-violent but threatening and expensive for India to confront on a largely mountainous border, often several thousand meters (nearly 10,000 feet) high. China appears to have reduced their aggressive “crossing into India” border activity in the last few months, apparently to concentrate on the growing threat of a financial collapse brought on by a real estate bubble bursting and threatening the stability of the Chinese economy.

October 13, 2021: A coal shortage led China to encourage more North Korea coal exports, especially if they are to commercial firms in China rather than government owned companies. The commercial firms can arrange and carry out such deals faster than employees of state-owned firms. Inside North Korea there has been increased demand for coal because drought has reduced hydroelectric electricity generation and coal is being used as a substitute, no matter how imperfect. There is a shortage of experienced coal miners and the mines have been desperate to get new employees. Since early in the year the government has cooperated by sending recently discharged or still serving troops to coal mining duty. Older children from orphanages have also been used.

 

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