Welcome to China’s millennium
Martin Jacques guardian.co.uk, Tuesday 23 June 2009
A) Xi Jinping, the future leader of The Party in China, faces myriad challenges. For the Party, these challenges include its future legitimacy and mistrust within its own ranks. Eventually, like Japan, China’s export model that now propels growth and infrastructure investment, will stagnate. Increasing pressure upon The Party from the elite and a rising middle class could cause disorder but could compel the rulers to relax its security apparatus to release social steam. The long term solution for economic and social stability, the sine qua non for the modern Party’s rule, is domestic consumption. Concomitant with this fresh model, wages must rise, which will make China less attractive to American multi-nationals for their production platforms…
China faces pressure to reverse economic slump
JOE MCDONALD AND ELAINE KURTENBACH | May 15, 2012 03:01 AM EST|
BEIJING — Gao Runping, who makes mechanical components for the oil industry, founded his business in the central city of Taiyuan with equipment bought from failing companies after the 2008 global crisis.
Now, with China’s economy cooling abruptly again, Gao sees another wave of bankruptcies about to hit his industry.
“I can see about one-fifth to one-third of the factories are about to close, and owners are preparing to sell off their equipment,” said Gao, general manager of Taiyuan Fanhe Engineering Co.
China’s economic growth has decelerated from overheated to slower than Beijing wanted in just half a year as export demand and consumer spending at home weaken, raising the threat of job losses and possible unrest.
Chinese leaders are gradually reversing course after spending the past two years trying to cool growth and inflation. They are easing lending curbs and are expected to take other steps to shore up growth that fell to a nearly three-year low of 8.1 percent in the first quarter and is slowing further.
But they are moving cautiously after the stimulus that helped China avoid the 2008 crisis fueled inflation and a wasteful building boom.
“Everybody realized the stimulus was excessive,” said UBS economist Tao Wang. “This time, I think the government will be more cautious and more prudent.”
The slowdown adds to challenges for the Communist Party ahead of a once-a-decade handover of power to younger leaders this year. It follows a scandal over disgraced politician Bo Xilai and the embarrassment of a U.S.-Chinese high-level dialogue overshadowed by a standoff over a blind legal activist, Chen Guangcheng.
On Saturday, regulators reduced minimum reserves banks are required to hold in a move that frees up money for lending. Analysts said, though, that was in line with earlier plans and was unlikely to dramatically expand borrowing due to weak demand for credit.
That came after factory output in April plunged to its lowest level since the 2008 crisis and consumer spending, home sales and bank lending were unexpectedly weak, jarring hopes for a “soft landing” with growth rebounding as early as midyear.
Power consumption, an indicator of overall economic activity, rose just 3.7 percent in April over a year ago, compared with 7 percent in March, the National Energy Administration reported Tuesday.
The first quarter “was pretty anemic, and I think that is likely to get worse,” said Eric Fishwick, head of economic research for Hong Kong-based investment bank CLSA.
The figures have prompted some analysts to trim their growth outlook for this year, though to still-robust levels of 8 to 9 percent. The World Bank and International Monetary Fund are forecasting growth this year at 8.2 percent.
Adding to the gloom, sales of home appliances during the weeklong May Day holiday were down 30 to 40 percent from a year earlier, according to the newspaper China Business Journal.
Planners face a conflict between immediate growth needs and Beijing’s long-term effort to reduce heavy reliance on exports and investment and create a more self-sustaining, consumer-based Chinese economy.
A quick way to pump money into the economy is through more spending on building highways and other public works. But authorities are reluctant to do that again after the 2008 stimulus left local governments that splurged on new roads, buildings and other projects with heavy debts to state banks that some may be unable to repay.
The flood of money also set off stock market and real estate speculation, forcing up politically sensitive housing costs. Inflation spiked to a 37-month high of 6.5 percent last July, with food prices surging 14.8 percent, before subsiding to 3.4 percent in April, below the government’s 4 percent target for the year.
Instead, authorities are likely to take carefully controlled steps to spend a small amount more on infrastructure, encourage more building of low-cost housing and nudge up bank lending, said Wang of UBS.
The government began easing controls late last year after global demand for Chinese goods weakened. Beijing promised more lending to small and private companies and eased a moratorium on loans to developers of lower-priced housing.
“So far, either these measures have not come out as quickly or have not had as much effect” as Beijing wanted, Wang said. “So I think the government, along the lines of modest easing, will do a little bit more.”
Real estate poses another dilemma. The industry traditionally has been China’s biggest growth driver, fueling spending on construction and home furnishings. But high housing costs divert money away from consumer spending that Chinese leaders are trying to encourage and are politically dangerous for the ruling Communist Party by eroding economic gains that underpin its claim to power.
Premier Wen Jiabao affirmed Beijing’s resolve to keep most controls on real estate in place, saying in March that while prices had eased slightly from their mid-2011 highs, they were still far above “reasonable levels.”
“The authorities have just not found a new industry is big enough to replace the vigor that the real estate industry had for boosting the economy,” said Song Huiyong, director of research for Shanghai Centaline Property, a real estate broker.
“The authorities just want to stall for time,” Song said.
Other policies used in 2008, such as subsidies for appliance purchases by rural families, have run out of steam and left producers with excess manufacturing capacity.
Beijing might be reacting too slowly, said Dariusz Kowalczyk, senior economist for Credit Agricole CIB in Hong Kong, in a report this week.
Policymakers “are increasingly looking behind the curve,” Kowalczyk said. “Insistence that a growth slowdown is the price to pay for structural reforms makes sense in the long run, but – if taken too far – it threatens the medium-term growth targets.”
China’s struggling entrepreneurs are likely to be of little help in boosting demand as they put off investment amid plunging revenues.
Entrepreneurs that survived the 2008 crisis, which forced thousands of export-dependent factories to close, began to feel a new chill last autumn as global demand sagged. The slump has spread inland as domestic demand also weakens.
“We are getting fewer business inquiries. Market demand is weaker and we have less room for profit,” said Gao, the manufacturer of oil equipment in Taiyuan.
Orders by foreign buyers at the spring session of the Canton Trade Fair, the country’s biggest annual export sales event, were down 4.8 percent from a year earlier, the government newspaper China Daily reported.
In Wenzhou, a southeastern hub for private business, entrepreneurs cannot get credit from state banks, said Zhou Dewen, head of a small business association. That is despite a pledge by Beijing to increase private sector lending there after a wave of defaults last year by borrowers who were forced to turn to underground lenders.
“Businesspeople should brace themselves for hard times,” Zhou said. “I don’t think the situation will improve this year, but let’s see how it will go next year.”
China’s Growth Slows, and Its Political Model Shows Limits
By EDWARD WONG
Published: May 10, 2012
CHONGQING, China — After the economies of Western nations imploded in late 2008, Chinese leaders began boasting of their nation’s supremacy. Talk spread, not only in China but also across the West, of the advantages of the so-called China model — a vaguely defined combination of authoritarian politics and state-driven capitalism — that was to be the guiding light for this century.
But now, with the recent political upheavals, and a growing number of influential voices demanding a resurrection of freer economic policies, it appears that the sense of triumphalism was, at best, premature, and perhaps seriously misguided. Chinese leaders are grappling with a range of uncertainties, from the once-a-decade leadership transition this year that has been marred by a seismic political scandal, to a slowdown of growth in an economy in which deeply entrenched state-owned enterprises and their political patrons have hobbled market forces and private entrepreneurship.
“Many economic problems that we face are actually political problems in disguise, such as the nature of the economy, the nature of the ownership system in the country and groups of vested interests,” said Zhang Ming, a political scientist at Renmin University in Beijing. “The problems are so serious that they have to be solved now and can no longer be put off.”
On Thursday, China released data that showed its economy was continuing to weaken. Many economists have been urging the government to loosen controls over the financial system, to support lending to private businesses while reining in state-owned enterprises, to allow more movement in exchange rates and interest rates, and to improve social benefits.
Such changes would curb the state’s role, lessen corruption and encourage competition. But making them would involve a titanic power struggle. Executives of Chinese conglomerates, army generals, Politburo members, local officials and the “princeling” children of Communist Party elders have little incentive to refashion a system that fills their coffers.
Another significant aspect of the China model is the growing security apparatus. Its heavy-handed tactics in pursuit of social stability have been called into question by, among other things, more than 30 self-immolations by disaffected Tibetans and a diplomatic crisis between China and the United States precipitated by the plight of a persecuted dissident, Chen Guangcheng. A well-documented uprising last winter against corrupt officials in the southern village of Wukan ignited a debate about how protests should be addressed: by the sword of the security forces, or through mediation by senior officials.
But it is the scandal over Bo Xilai, until recently a member of the party’s elite Politburo, that has most humbled those who previously praised the well-oiled nature of China’s political system and its appearance of unity.
Before the charismatic Mr. Bo lost his party chief post in Chongqing, other leaders were already starting to view him as an increasingly intolerable maverick. After arriving in Chongqing in late 2007, Mr. Bo began what was billed as a crackdown on crime, along with a revival of Mao-era singalongs and welfare policies, aimed at generating populist backing and winning political support from the “new left,” or hard-core socialists, for his bid to join the top-level Politburo Standing Committee, which is scheduled to turn over this year.
Mr. Bo’s bid veered sharply from the traditional route of ascension, which since the era of Deng Xiaoping has been one of back-room patronage and shadowy negotiations among party elders. The problem now in China is that the powers of those elders have diminished with each generation — the current president and party chief, Hu Jintao, is weaker than his predecessor, Jiang Zemin, who was much weaker than Mr. Deng.
With the dissolution of power, a multitude of factions and alliances are emerging under one-party rule, with no one voice able to impose order.
“China needs a system in place more than ever,” said Wang Kang, a liberal writer from Chongqing.
“Only a system can guarantee stability.”
Some say that the purge of Mr. Bo was a correction in the political system, and that the system has returned to normal. But many others argue that given the growing incoherence at the top, and the diversity and reach of mass media in China, it is inevitable that more politicians will adopt Mr. Bo’s populist methods. Cheng Li, a scholar of Chinese politics, noted that at the annual National People’s Congress in March, several rising sixth-generation leaders gave prominent news media interviews, a form of self-promotion that was a break from tradition.
“There are no clear and steadfast rules,” said Wu Si, chief editor of Yanhuang Chunqiu, a journal of politics and history. “In this confused state, there is bound to be someone like Bo Xilai who deploys various methods to compete to enter the standing committee.”
Mr. Bo’s policies also helped expose another fault line in the China model: the priority placed on economic growth through investment projects carried out by state-owned enterprises, with generous loans from state banks. This is the framework propping up the Chinese economy….
China Purge Sets Up Scramble at Top
Chongqing Chief’s Ouster Heightens Rivalry Among Dueling Party Wings; Self-Promotion Seen as Bo Xilai’s Main Offense
Bo Xilai and China’s corrupt secrets
By David Ignatius, Published: April 20
The Bo Xilai affair offers a reality check for anyone who’s worried that a rising China will supplant the United States anytime soon: First, the Chinese know that the scandal is just the tip of an iceberg of corruption menacing the country; and second, the leadership in Beijing understands that the scandal could have been much messier if the White House hadn’t kept quiet the past two months.
The story surrounding Bo, the deposed party chief in the southern city of Chongqing, is so improbable and convoluted it would be tossed in the slush pile if submitted to a publisher of espionage fiction. It involves Bo’s scheming wife; a dead Brit who may have been her lover; and a police chief who tried to rat out the boss by defecting to the U.S. consulate and, after singing to the Americans for 24 hours, was tossed out the door.
One China expert likens Bo to Newt Gingrich: He’s a charismatic, relentlessly ambitious man whom everyone else in the leadership wanted to stop before he charmed and intimidated his way into China’s most elite group, the standing committee of the Politburo of the Communist Party.
The corruption that surfaced in the Bo case is hardly unique to Chongqing. Kenneth Lieberthal, a China expert at the Brookings Institution, says that similar patronage networks operate across the country. Top party officials use their relatives to collect bribes, through payments to law firms or private equity firms, much as Bo did with his wife. Even the most respected officials, such as President Hu Jintao and Premier Wen Jiabao, are said to have close relatives whose behavior is questionable.
“If the party doesn’t transform itself, it faces a fatal blow,” warns Cheng Li, another China expert at Brookings. If the leadership tries to keep a tight lid on, the system could explode.
The Bo affair is one of those moments that allow outsiders to glimpse the dark side of China’s economic rise.
You get the same glimmer of insight seeing a district-level official blow $1 million in a night at a casino in Macau, notes one China watcher. How did the relatively junior official get so much gambling money? The answer, says this observer, is that he stole it, through family and friends.
The endemic corruption is one reason many analysts think China faces a period of political instability as it consolidates the fantastic economic gains of recent years. As prosperous as the new China may appear, the country is also riddled with networks of corrupt power and privilege — and managed by a nervous elite that is transferring ill-gained loot to foreign bank accounts before it gets caught.
Lieberthal notes the anxiety that must now afflict Bo’s network of corrupt allies — any one of whom could be exposed by the investigation that brought down the Chongqing boss.
Here’s where the United States plays a steadying role for a still-shaky China. When the Chongqing police chief, Wang Lijun, walked into the U.S. consulate in Chengdu in early February, he was carrying the equivalent of political dynamite. He apparently had documents to back up his allegations about Bo and his wife and their cronies. But after debriefing the cop, the State Department contacted senior Chinese officials in Beijing (as opposed to Bo’s henchmen in the province), who came to Chengdu and put the talkative police chief on a plane to the capital, where he’s now in custody.
The United States could have gone public with the scandal and made trouble for the Chinese, big-time. Instead, the State Department (backed by the White House) decided to treat it as an internal political matter involving a corrupt local police chief. Some Republican legislators are complaining that Washington spurned a potential defector, but that’s silly. Using such a local police chief to play political games would have been a mistake, and administration officials made the right call.
This supportive American role continued through February, during a visit to the United States by Xi Jinping, who is slated to be China’s next president. The Obama White House kept silent about China’s internal turmoil, knowing that Xi’s visit was a crucial rite of passage and that it was important to start building a good relationship with the man who’s likely to lead China through the next tumultuous decade.
China needs a good relationship with America more than it sometimes appears. Taking short-term advantage of China’s woes would be stupid, especially when the country is making a transition to a new and, hopefully, more open leadership.
Across China, there is said to be uncertainty as officials try to understand what’s happening and to protect themselves. It’s a nerve-wracking moment for a country where, as one longtime China investor privately observes, “the whole point of political office is to steal as much money as possible as fast as possible.”
The Chinese middle class, whose rise has buttressed political stability, appears disgruntled. Social media in China are alive with complaints about product safety, food safety, air quality (described by U.S. officials as “crazy bad”) and widespread corruption. A crucial social force is increasingly disaffected, and the spread of new social media amplifies this discontent.
In China, relatives of Party officials build lucrative businesses on family contacts
By Andrew Higgins, Published: April 23
HONG KONG — When Chinese authorities launched an investigation in 2006 into potential foreign currency violations by Beijing Henderson Properties, the real estate developer called in some curious outside help. It turned to a Chinese investment company with no evident expertise in currency regulations and to a murky Hong Kong foundation with no discernible offices and no listed telephone number.
But the real estate company’s helpers did have one significant asset: access to officials at the Chinese government agency handling the investigation, made possible by the door-opening powers of China’s “red nobility,” a potent network of Communist Party leaders, their families and their friends.
A confidential January 2007 Henderson memo obtained by The Washington Post lays bare the property developer’s calculations, describing the two organizations as “a bridge for our company to link up with the State Administration of Foreign Exchange. They claim to have intimate connections with high levels at SAFE, and have certain influence.”
The principal span of this “bridge” was Shenzhen Zhaotian Investments, a China-registered private company headed by Tian Chenggang, the son of a former member of the Communist Party’s supreme decision-making body, the Politburo Standing Committee. A second connection was provided by the Strait Peaceful Reunification Foundation, a Hong Kong group with close ties to the brother of another former Standing Committee member.
What the two outfits did exactly is unclear, but Henderson ended up facing only a modest fine.
The episode, detailed in documents relating to a recent Hong Kong court case triggered by a dispute over consulting fees, illuminates a small corner of a booming but almost entirely hidden Chinese industry: influence peddling by members of Communist Party aristocracy. The children and other relatives of party barons, known as princelings, dominate the market in high-level connections, a valuable commodity in a country where the will of the party often trumps the rule of law.
The role — and riches — of China’s princelings has become a particularly touchy issue in the run-up to a party congress this fall that is expected to elevate Vice President Xi Jinping, the son of a Mao-era revolutionary hero, to the summit of power in Beijing.
Xi’s family has not been linked to any evidence of trading influence for cash, but the recent purge of Chongqing party chief Bo Xilai, another prominent princeling, has focused attention on the lavish lifestyles and often mysterious wealth of senior ruling-party families.
In recent weeks, pictures of Bo’s son Guagua have been plastered across the Internet, showing the Harvard student cavorting at bacchanalian parties. (Xi’s daughter also studies at the school but keeps a lower, more button-down profile.)
Bo’s wife, Gu Kailai — a lawyer and the daughter of an early People’s Liberation Army general — is now in detention and under investigation in the death of British business consultant Neil Heywood, an estranged Bo family friend and onetime business adviser. Gu used to run a consulting business, assisting foreign companies trying to find their way in China. Bo’s wife and her sister, along with Bo’s brother, a businessman in Beijing, have stakes in a string of ventures in China and abroad.
MORE – 4 pages
‘Princelings’ in China Use Family Ties to Gain Riches
By DAVID BARBOZA and SHARON LaFRANIERE
Published: May 17, 2012
SHANGHAI — The Hollywood studio DreamWorks Animation recently announced a bold move to crack China’s tightly protected film industry: a $330 million deal to create a Shanghai animation studio that might one day rival the California shops that turn out hits like “Kung Fu Panda” and “The Incredibles.”
What DreamWorks did not showcase, however, was one of its newest — and most important — Chinese partners: Jiang Mianheng, the 61-year-old son of Jiang Zemin, the former Communist Party leader and the most powerful political kingmaker of China’s last two decades.
The younger Mr. Jiang’s coups have included ventures with Microsoft and Nokia and oversight of a clutch of state-backed investment vehicles that have major interests in telecommunications, semiconductors and construction projects.
That a dealmaker like Mr. Jiang would be included in an undertaking like that of DreamWorks is almost a given in today’s China. Analysts say this is how the Communist Party shares the spoils, allowing the relatives of senior leaders to cash in on one of the biggest economic booms in history.
As the scandal over Bo Xilai continues to reverberate, the authorities here are eager to paint Mr. Bo, a fallen leader who was one of 25 members of China’s ruling Politburo, as a rogue operator who abused his power, even as his family members accumulated a substantial fortune.
But evidence is mounting that the relatives of other current and former senior officials have also amassed vast wealth, often playing central roles in businesses closely entwined with the state, including those involved in finance, energy, domestic security, telecommunications and entertainment. Many of these so-called princelings also serve as middlemen to a host of global companies and wealthy tycoons eager to do business in China.
“Whenever there is something profitable that emerges in the economy, they’ll be at the front of the queue,” said Minxin Pei, an expert on China’s leadership and professor of government at Claremont McKenna College in California. “They’ve gotten into private equity, state-owned enterprises, natural resources — you name it.”
For example, Wen Yunsong, the son of Prime Minister Wen Jiabao, heads a state-owned company that boasts that it will soon be Asia’s largest satellite communications operator. President Hu Jintao’s son, Hu Haifeng, once managed a state-controlled firm that held a monopoly on security scanners used in China’s airports, shipping ports and subway stations. And in 2006, Feng Shaodong, the son-in-law of Wu Bangguo, the party’s second-ranking official, helped Merrill Lynch win a deal to arrange the $22 billion public listing of the giant state-run bank I.C.B.C., in what became the world’s largest initial public stock offering.
Much of the income earned by families of senior leaders may be entirely legal. But it is all but impossible to distinguish between legitimate and ill-gotten gains because there is no public disclosure of the wealth of officials and their relatives. Conflict-of-interest laws are weak or nonexistent. And the business dealings of the political elite are heavily censored in the state-controlled news media.
The spoils system, for all the efforts to keep a lid on it, poses a fundamental challenge to the legitimacy of the Communist Party. As the state’s business has become increasingly intertwined with a class of families sometimes called the Red Nobility, analysts say the potential exists for a backlash against an increasingly entrenched elite. They also point to the risk that national policies may be subverted by leaders and former leaders, many of whom exert influence long after their retirement, acting to protect their own interests.
Chinese officials and their relatives rarely discuss such a delicate issue publicly. The New York Times made repeated attempts to reach public officials and their relatives for this article, often through their companies. None of those reached agreed to comment on the record.
DreamWorks and Microsoft declined to comment about their relationship with Mr. Jiang.
MORE – 3 pages
China’s Fickle Talent Pool
Service Jobs Go Begging as Retailers, Hoteliers Vie for Workers With the Right Skills
Chinese communist leaders denounce U.S. values but send children to U.S. colleges
…the kin of senior party officials are a special case: They rarely attend state schools but congregate instead at top-tier — and very expensive — private colleges, a stark rejection of the egalitarian ideals that brought the Communist Party to power in 1949. Of the nine members of the Politburo Standing Committee, the supreme decision-making body of a Communist Party steeped in anti-American rhetoric, at least five have children or grandchildren who have studied or are studying in the United States.
B) China’s trading partners will also be challenged by her increasing economic power.
Corn prices up as China muscles in
Russia turns east to embrace looming China
“If Peter the Great were alive today he would relocate the capital to Vladivostok not St Petersburg,” said Dmitry Trenin of the think-tank Carnegie Moscow Center, referring to the 18th-century tsar’s drive to push Russians into the heart of Europe.
“The Pacific is the equivalent of the Baltic Sea in the 18th century. It’s where the action is,” Trenin said. “But Russia needs to divert far more attention to the Far East than it has been devoting recently … It will remain a challenge.”
Five myths about America’s decline
4. The United States will give way to a rising China.
For all its progress in recent decades, China has to undergo daunting reforms to set itself on a path to becoming a modern, middle-class power. Even Premier Wen Jiabao has admitted that his country’s growth model is “unstable, unbalanced, uncoordinated and unsustainable.”
Here’s why: China, despite its increasing clout, is still a relatively poor economy, its growth fueled by plentiful cheap labor. This resource is problematic. As China continues to grow and moves up the value chain to produce higher-end goods, wages will not remain low. And labor will not just be costlier — it will also be scarcer. As a result of the Mao-era birth rate spike in the 1960s, followed by the one-child policy starting in the 1970s, China faces the double-edged sword of a growing senior population and a shrinking labor force to support the elderly. The ratio of Chinese workers to retirees is around 6 to 1 today, but by 2040, that number is expected to shrink to 2 to 1.
Finally, imagine a world in which a poorer country such as China becomes the world’s largest economy. The Chinese government’s willingness to lead on issues such as climate change and nuclear non-proliferation would probably pale in comparison with the leadership America provides today — yet one more reason Beijing will not supplant Washington anytime soon.
Chinese Insider Offers Rare Glimpse of U.S.-China Frictions
By JANE PERLEZ
Published: April 2, 2012
BO’AO, China — The senior leadership of the Chinese government increasingly views the competition between the United States and China as a zero-sum game, with China the likely long-range winner if the American economy and domestic political system continue to stumble, according to an influential Chinese policy analyst.
China views the United States as a declining power, but at the same time believes that Washington is trying to fight back to undermine, and even disrupt, the economic and military growth that point to China’s becoming the world’s most powerful country, according to the analyst, Wang Jisi, the co-author of “Addressing U.S.-China Strategic Distrust,” a monograph published this week by the Brookings Institution in Washington and the Institute for International and Strategic Studies at Peking University.
Mr. Wang, who has an insider’s view of Chinese foreign policy from his positions on advisory boards of the Chinese Communist Party and the Ministry of Foreign Affairs, contributed an assessment of Chinese policy toward the United States.Kenneth Lieberthal, the director of the John L. Thornton Center for China Studies at Brookings, and a former member of the National Security Council under President Bill Clinton, wrote the appraisal of Washington’s attitude toward China.
In a joint conclusion, the authors say the level of strategic distrust between the two countries has become so corrosive that if not corrected the countries risk becoming open antagonists.
The United States is no longer seen as “that awesome, nor is it trustworthy, and its example to the world and admonitions to China should therefore be much discounted,” Mr. Wang writes of the general view of China’s leadership.
In contrast, China has mounting self-confidence in its own economic and military strides, particularly the closing power gap since the start of the Iraq war. In 2003, he argues, America’s gross domestic product was eight times as large as China’s, but today it is less than three times larger.
The candid writing by Mr. Wang is striking because of his influence and access, in Washington as well as in Beijing. Mr. Wang, who is dean of Peking University’s School of International Studies and a guest professor at the National Defense University of the People’s Liberation Army, has wide access to senior American policy makers, making him an unusual repository of information about the thinking in both countries. Mr. Wang said he did not seek approval from the Chinese government to write the study, nor did he consult the government about it.
It is fairly rare for a Chinese analyst who is not part of the strident nationalistic drumbeat to strip away the official talk by both the United States and China about mutual cooperation.
Both Mr. Wang and Mr. Lieberthal argue that beneath the surface, both countries see deep dangers and threatening motivations in the policies of the other.
Mr. Wang writes that the Chinese leadership, backed by the domestic news media and the education system, believes that China’s turn in the world has arrived, and that it is the United States that is “on the wrong side of history.” The period of “keeping a low profile,” a dictum coined by the Chinese leader Deng Xiaoping in 1989, and continued until now by the departing president, Hu Jintao, is over, Mr. Wang warns.
“It is now a question of how many years, rather than how many decades, before China replaces the United States as the largest economy in the world,” he adds.
China’s financial successes, starting with weathering the 1998 Asian financial crisis and the 2008 global financial crisis, the execution of events like the Beijing Olympics in 2008 and the Shanghai Expo in 2010, contrast with America’s “alarming” deficit, sluggish economic recovery and polarized domestic politics, Mr. Wang says.
He does not address head on the far superior strength of the United States in military weaponry. But he notes that Beijing has developed advanced rocketry and space technology and sophisticated weapons systems without the “United States or the U.S.-led world order.”
In the face of China’s strengths, and worries that the United States will be displaced from its premier position in the world, Washington is engaged in activities including stepped-up spying by American planes and ships along China’s borders that anger the Chinese, particularly its military, Mr. Wang writes.
Promotion of human rights in China by American-supported nongovernmental organizations is viewed as an effort to “Westernize” the country and undermine the Communist Party, a stance the party will not stand for, he says.
That China is increasingly confident that it will prevail in the long run against the United States is backed, in part, by Mr. Lieberthal’s appraisal of American policy toward China.
Mr. Lieberthal cites findings from American intelligence based on internal discussions among crucial Chinese officials that these officials assume “very much a zero-sum approach” when discussing issues directly and indirectly related to United States-China relations.
Because these are privileged communications not intended for public consumption, American officials interpret them to be “particularly revealing of China’s ‘real’ objectives,” he writes.
In turn, American law enforcement officials see an alarming increase in Chinese counterespionage and cyberattacks against the United States that they have concluded are directed by the Chinese authorities to gather information of national interest.
At a seminar last week at Tsinghua University in Beijing, where Brookings finances a study center, Mr. Lieberthal said there was an increasing belief on both sides that the two countries would be “antagonistic in 15 years.”
That would mean major military expenditures by both countries to deter each other, and pushing other countries to take sides. “The worst case is that this could lead to actual armed conflict, although that is by no means a necessary consequence of mutual antagonism,” Mr. Lieberthal said in an interview.
US and China engage in cyber war games
Exclusive: US and Chinese officials take part in war games in bid to prevent military escalation from cyber attacks
Nick Hopkins guardian.co.uk, Monday 16 April 2012 08.00 EDT
The US and China have been discreetly engaging in “war games” amid rising anger in Washington over the scale and audacity of Beijing-co-ordinated cyber attacks on western governments and big business, the Guardian has learned.
State department and Pentagon officials, along with their Chinese counterparts, were involved in two war games last year that were designed to help prevent a sudden military escalation between the sides if either felt they were being targeted. Another session is planned for May.
Though the exercises have given the US a chance to vent its frustration at what appears to be state-sponsored espionage and theft on an industrial scale, China has been belligerent.
“China has come to the conclusion that the power relationship has changed, and it has changed in a way that favours them,” said Jim Lewis, a senior fellow and director at the Centre for Strategic and International Studies (CSIS) thinktank in Washington.
“The PLA [People's Liberation Army] is very hostile. They see the US as a target. They feel they have justification for their actions. They think the US is in decline.”
The war games have been organised through the CSIS and a Beijing thinktank, the China Institute of Contemporary International Relations. This has allowed government officials, and those from the US intelligence agencies, to have contact in a less formal environment.
Known as “Track 1.5″ diplomacy, it is the closest governments can get in conflict management without full-blown talks.
“We co-ordinate the war games with the state department and department of defence,” said Lewis, who brokered the meetings, which took place in Beijing last June, and in Washington in December.
“The officials start out as observers and become participants … it is very much the same on the Chinese side. Because it is organised between two thinktanks they can speak more freely.”
During the first exercise, both sides had to describe what they would do if they were attacked by a sophisticated computer virus, such as Stuxnet, which disabled centrifuges in Iran’s nuclear programme. In the second, they had to describe their reaction if the attack was known to have been launched from the other side.
“The two war games have been quite amazing,” said Lewis. “The first one went well, the second one not so well.
“The Chinese are very astute. They send knowledgeable people. We want to find ways to change their behaviour … [but] they can justify what they are doing. Their attitude is, they have experienced imperialism and they had a century of humiliation.”
Lewis said the Chinese have a “sense that they have been treated unfairly”.
“The Chinese have a deep distrust of the US. They are concerned about US military capabilities. They tend to think we have a grand strategy to preserve US hegemony and they see a direct challenge.
“The [Chinese officials] who favour co-operation are not as strong as the people who favour conflict.”
The need for the meetings has been underlined in recent months as the US and the UK have tried to increase pressure on China, which they regard as chiefly responsible for the theft of billions of dollars of plans and intellectual property from defence manufacturers, government departments, and private companies at the heart of America’s national infrastructure.
Analysts say this amounts to “preparation of the battlefield”, and both the UK and the US have warned Beijing to expect retaliation if it continues.
In recent months, the US has made clear it is turning its military focus away from Europe towards the Pacific to protect American interests in the region.
“Of the countries actively involved in cyber espionage, China is the only one likely to be a military competitor to the US,” Lewis said.
“US and Chinese forces are in close proximity and there are hostile incidents … The odds of miscalculation are high, so we are trying to get a clear understanding of each side’s position.”
Lewis believes the US is preparing to become more aggressive towards China, saying President Barack Obama has already tasked internal working groups in the White House to consider tougher sanctions.
Without naming China, a senior executive in the FBI told the Guardian the threats posed from cyber attacks were alarming.
“We know that the capabilities of foreign states are substantial and we know the type of information that they are targeting,” said Shawn Henry, executive assistant director of the FBI’s cyber unit.
“We have seen adversaries that have been in networks for many months or even years in some cases, undetected. They have essentially had free rein over those networks … They have complete ability to disrupt that network entirely.”
Frank Cilluffo, who was George Bush’s special assistant on homeland security, said the time had come to confront China.
“We need to talk about offensive capabilities to deter bad actors. You cannot expect companies to defend against foreign intelligence services. There are certain things we should do if someone is doing the cyber equivalent of intelligence preparation of the battlefield of our energy infrastructure.
“To me that’s off grounds. That demands a response. What other incentive could there be to map our infrastructure in the event of a crisis?
“We have a stronger hand in conventional military and diplomatic means. We need to show them our cards. All instruments on the table. I think we do have to start talking active defence.”
He said the US had to be proactive or, in time, people would start losing confidence in the integrity of the internet and computer systems.
“If I don’t invest because I am afraid, if I don’t use the web because I am afraid, if you lose trust and confidence in those systems, the bad guys have won. Checkmate.”
The state department refused to speak about the war games, or say which officials took part.
A spokesman said: “The United States is committed to engaging countries to build a global environment in which all states recognise and adhere to norms of acceptable behaviour in cyberspace. We are engaging broadly with the Chinese government on cyber issues so that we can find common ground on these issues which have increasing importance in our bilateral relationship.”
The Pentagon declined to comment or say which of its officials took part in the war games.
China has consistently denied being responsible for cyber attacks on the US and other western countries. It says it is also the victim of this kind of espionage.
The Chinese defence minister, Liang Guanglie, has said Beijing “stands firmly against all kinds of cyber crimes”.
“It is hard to attribute the real source of attacks and we need to work together to make sure that this security problem won’t be a problem,” he said.
“Actually in China we also suffered quite a wide range [of], and frequent, cyber attacks. The Chinese government attaches importance also on cyber security and stands firmly against all kinds of cyber crimes. It is important for everyone to obey or follow laws and regulations in terms of cyber security.”
The People’s Daily, the Chinese newspaper that most reflects the views of China’s ruling Communist party, said last year that linking China to internet hacking attacks was irresponsible.
“As the number of hacking attacks on prominent international businesses and organisations has grown this year, some western media have repeatedly depicted China as the villain behind the scenes.”
U.S. Sees Positive Signs From China on Security Issues
For years, China stymied efforts to pressure Iran. Now, in addition to throwing its weight behind the sanctions effort, officials say, Beijing is also playing a more active role in the recently revived nuclear talks between Iran and six world powers — the United States, China, Russia, Britain, France and Germany. While in past negotiations, Beijing has followed in lockstep the positions taken by Russia, this time Chinese diplomats are offering their own proposals.
“One of the key elements of making this work is unity among the major powers,” said a senior administration official, who spoke on condition of anonymity to discuss diplomatic exchanges. “The Chinese have been very good partners in this regard.”
There are also signs of new cooperation on Syria. Only weeks after Secretary of State Hillary Rodham Clinton called China’s veto of a United Nations Security Council resolution “despicable,” China is supporting Kofi Annan’s peace plan for the strife-torn country and is deploying monitors to help oversee it. Even on North Korea, which China has long sheltered from tougher international action, the Chinese government quickly signed on to a United Nations statement condemning the North’s recent attempt to launch a satellite.
And there is progress on the economic front: American officials said China recently loosened trading on its currency, the renminbi, which could help close a valuation gap with the dollar that has stoked trade tensions between China and the United States during an election year.
C) China’s neighbors will be confronted by her new found self-confidence and assertiveness.
Vietnam protests China’s S. China Sea fishing ban
May 15, 2012 10:41 PM EST |
HANOI, Vietnam — Vietnam is protesting China’s fishing ban in parts of the South China Sea that Hanoi claims as its own.
Foreign Ministry spokesman Luong Thanh Nghi says in a statement posted on the ministry’s website late Tuesday that Vietnam considers China’s decision “invalid.”
China’s seasonal ban begins Wednesday and is meant to curb overfishing in the South China Sea. But parts of the sea also are claimed by Vietnam, the Philippines, Malaysia, Brunei and Taiwan. The sea has valuable fishing grounds and shipping lanes, and is believed to be rich in oil and gas.
Vietnam and China have recently engaged in spats in disputed waters, and a marine standoff between the Philippines and China over an uninhabited shoal has gone on for more than a month.
China asserts its territorial claims in South China Sea
BEIJING (USA TODAY) — Chinese travel agent Ou Nanxi has never seen such gorgeous beaches like those found on the trial cruise she took to the uninhabited islets of the Paracel Islands.
“There were white coral beaches and islands; the sea shone even bluer than the sky,” Ou says.
Ou is confident Chinese tourists will clamor to book cruises to the islands in the South China Sea as soon as the government allows it: “It’s so beautiful there, and this is Chinese territory.”
Vietnam disagrees, having been forced off the island chain in 1974 by the People’s Liberation Army. Today, the Paracels are among 200 islands, coral outcrops and banks whose ownership and resources China says are its alone to exploit.
The Philippines, Taiwan, Malaysia, Brunei and Vietnam all claim ownership of some islands. China’s official map stakes a claim to almost all the 1.2 million-square-mile sea, including territory hundreds of miles from its mainland shore.
China recently said it will begin developing tourism on the Paracels. China’s State Oceanic Administration said Thursday it agreed “in principle” to plans to build a supply dock at Drummond Island. The announcement was one of several instances in which China is starting to assert sweeping claims over most of the South China Sea’s islands, fishing grounds and unexplored deposits of oil and natural gas.
A clash between East and West is perhaps unavoidable, given that the United States says it will protect freedom of navigation and commerce for all Asian nations in what is one of the world’s busiest shipping routes, some experts say.
“China has boxed itself in,” says Stephanie Kleine-Ahlbrandt, North East Asia project director for the International Crisis Group.
She says China has so convinced its public of their country’s claims that significant policy shifts will be tough. In “Stirring up the South China Sea,” a report issued this week, the group notes a dramatic increase in hostile incidents between maritime forces in recent years.
Beijing moderated its stance in 2011 after tensions led its neighbors to seek closer military ties with the U.S. But “the conflicting mandates and lack of coordination” among Chinese government agencies running maritime policy continue to stoke tensions, the report says.
In the latest confrontation, Chinese and Philippine ships have been in a naval standoff for nearly three weeks after the Philippines intercepted Chinese fishing boats plying the waters of Scarborough Shoal, named for a tea ship that wrecked there in the 18th century.
The shoal is 472 nautical miles from China’s coast, and 124 nautical miles from the Philippines, inside the 200 nautical miles that international law defines as a nation’s exclusive economic zone. On Thursday, the Philippines accused China of violating a 2002 non-aggression pact when Chinese government ships prevented Philippine authorities from arresting Chinese fishermen in the shoal.
The shoal is among the many spots in the South China Sea that have been claimed and occupied by various nations over the centuries. China’s claim, covering about 80% of the sea, and based on its interpretation of history, not current international law, has long worried its neighbors.
The U.S. wants the territorial disputes settled by negotiation. But the U.S. is allied with some of China’s rivals and conducted this week long-planned naval exercises in the region with Vietnam and the Philippines.
Farther northeast, the U.S. is conducting annual drills with South Korea, while China this week began naval drills with Russia in the Yellow Sea.
Philippine President Benigno Aquino said the world must know what “China is doing to us. If we are being treated this way, countries of the same size or those smaller can also be given the same treatment.”
The U.S. military activities are stoking Chinese suspicions that Washington is plotting to halt China’s rise as a power.
Through its drills, the U.S. intends to “use those southeast Asian countries who have frictions with China to confront China … and achieve its goal of containing China,” Zhu Zhenming, a researcher at the Yunnan Academy of Social Sciences, told the China Business News on Wednesday.
The rise of incidents such as Scarborough Shoal “increases the risk of an accidental clash that could escalate into a military or diplomatic crisis,” says Ian Storey of the Institute of Southeast Asian Studies in Singapore. “It’s only a matter of time before one side opens fire on the other, and there will be casualties.”
Negotiation will prevent conflicts, says Zhang Yulan, a southeast Asia expert at the Chinese Academy of Social Sciences, a government think tank in Beijing. “China’s recent aggressiveness was caused by neighboring countries such as Philippines and Vietnam,” he says.
Some foreign policy experts say only a strengthened U.S. naval presence will prevent China from taking over.
The South China Sea will be “the strategic bellwether for determining the future of U.S. leadership in the Asia-Pacific region,” wrote Patrick Cronin and Robert Kaplan in a report by the Center for a New American Security.
On Hainan Island, travel agent Ou has no doubt who will emerge the winner among China and its neighbors.
“I understand there have been disputes going on for years,” Ou says, “but I’m sure they can be solved through mediation because China is stronger than all those countries.”
For all its progress in recent decades, China has to undergo daunting reforms to set itself on a path to becoming a modern, middle-class power. Even Premier Wen Jiabao has admitted that his country’s growth model is “unstable, unbalanced, uncoordinated and unsustainable.”
Here’s why. China, despite its increasing clout, is still a relatively poor economy, its growth fueled by plentiful cheap labor. This resource is problematic. As China continues to grow and moves up the value chain to produce higher-end goods, wages will not remain low. And labor will not just be costlier — it will also be scarcer. As a result of the Mao-era birth rate spike in the 1960s, followed by the one-child policy starting in the 1970s, China faces the double edged-sword of a growing senior population and a shrinking labor force to support the elderly. The ratio of Chinese workers to retirees is around 6 to 1 today, but by 2040, that number is expected to shrink to 2 to 1.
Finally, imagine a world in which a poorer country such as China becomes the world’s largest economy. The Chinese government’s willingness to lead on issues such as climate change and nuclear non-proliferation would likely pale in comparison with the leadership America provides today — yet one more reason Beijing will not supplant Washington’s global role anytime soon.
China’s first deep-water rig to drill in South China Sea
The United States and China are meeting this week to talk about military and economic policy, but the headlines leading up to the talks have not been encouraging. Visiting the Philippines during a clash in the South China Sea, top American officials reaffirmed the alliance with Manila. And a Chinese activist escaped house arrest and briefly took shelter at the U.S. Embassy in Beijing, after which China an apology from the U.S.
The Chinese J-20 stealth fighters take too the air for test runs: The planes mark China’s entry as the third nation to have stealth technology vehind the U.S. and Russia
See anything familiar? The F-22 Raptor has similar canted tail-fins, a similar bubble canopy and nose section, and both have no flat surfaces to help avoid radar detection
China’s Military Rise
Pentagon Study Says China Military Getting Stronger
By JOHN H. CUSHMAN Jr.
Published: May 18, 2012
WASHINGTON — China is pressing a long-range modernization of its military, part of a strategy aimed at maximizing its leverage over Taiwan, extending its influence farther abroad, but avoiding conflict around its borders or with the United States, the Pentagon said on Friday in an annual report to Congress.
Chinese leaders, the report asserted, view this as a time to “focus on internal development while avoiding direct confrontation,” although they expect tension, competition, and territorial flare-ups from time to time, and they do not expect the status quo, however satisfactory they find it, to last indefinitely.
The United States, decades ahead technologically, spends much more, and in pivoting its strategy toward Asia and the Pacific, “seeks to build a military-to-military relationship with China that is healthy, stable, reliable, and continuous,” the annual report said.
Two months ago, Beijing announced an 11.2 percent increase in its annual military budget to roughly $106 billion. While economic comparisons and analysis have always been difficult, there is no doubt that the past few decades have seen steady expansion in China’s military spending, and the Pentagon’s estimate is that China is investing more than it says, but still only about a fourth of what the United States spends each year on the military.
For its money, China is getting more weapons, and better ones.
Its air force is “transforming into a force capable of offshore offensive and defensive operations,” the report said, with prototypes of a stealth fighter seen starting last year. Other areas of investment include defenses against ballistic missiles, early warning and air-defense missiles, and their land and naval equivalents.
But the developments cited in the report unfold only over decades. For example, China’s first aircraft carrier, purchased from Ukraine in 1998, set out on its shakedown cruise last summer, but China still has no planes equipped to land on its deck, and its naval pilots are still training ashore. “We expect it’ll take several additional years for an air group to achieve a minimal operational capability aboard the aircraft carrier,” said David Helvey, a Pentagon official handling regional issues, at a briefing on the report.
In many ways, the modernization shows a Chinese military that has watched what the United States has done in the past generation or two, and is exploring the same avenues of growth. From the restructuring of its army to the new ascendancy of information technologies in warfare, there are parallels.
To be sure, there are profound differences, as the People’s Liberation Army, or P.L.A., plays a distinct role in Chinese society, government, and economic affairs.
The two militaries are already operating more frequently in overlapping territories, and the 2012 report traced the same themes as last year’s, but a bit more succinctly.
In the past year, it noted, the P.L.A. “deployed assets to support noncombatant evacuation operations from Libya, extended its presence in the Gulf of Aden for a third year of counterpiracy operations, took on leadership roles in United Nations peace operations, and conducted medical exchanges and a service mission to Latin America and the Caribbean using the P.L.A. Navy’s hospital ship.”
These are examples of what the Chinese call “new historic missions” for the P.L.A., and while they are generally not threatening to other nations, they demonstrate a new assertiveness that the Pentagon, and some allies of the United States, look upon warily.
“China’s actions in 2011 with respect to ongoing land and maritime territorial disputes with neighbors,” the report said, “reflected a mix of contentment with the status quo, renewed efforts to reassure wary neighbors, and continued willingness (particularly through the use of paramilitary maritime law enforcement assets) to assert Chinese claims.” This has been especially notable in the South China Sea, where tensions with the Philippines continue.
However, “China notably took steps to ease relations with Japan and dampen suspicion among rival South China Sea claimants after China’s assertive posture in 2010 increased regional tensions. These steps included high-level engagement with Tokyo and confidence-building measures with the Association of Southeast Asian Nations (ASEAN), even as Chinese maritime law enforcement assets continued to defend Chinese claims in disputed areas,” the report said.
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