China: Requiem for the Fat Man


March 9, 2006: Recent actions by Taiwanese President Chen Shui-bian, suggesting that he's laying the foundation for a Taiwanese declaration of independence from China, seem to have prompted mostly negative reactions across Asia. Apparently the only Asian nation that has not openly come out against such a move is Japan, which has largely kept silent on the matter. In addition to international opposition, Chen faces a good deal of internal opposition as well. The principal opposition party in Taiwan, the Guomintang, heirs to the Nationalists who were forced to retreat to Taiwan upon losing a civil war to the Communists, are committed to a "one China" policy, as are many of Taiwan's major business interests, which have heavy investments in mainland China.

Chen's move toward independence is essentially a ploy to cater to a segment of Taiwan's electorate that favors the move. The majority of Taiwanese are native Taiwanese (whose families have lived on the island for centuries), while the Guomintang is supported by the minority descended from defeated Nationalist soldiers who arrived in the late 1940s. There are few practical benefits that would accrue to Taiwan if it did declare independence, and many disadvantages. Even if China did not undertake military action, it could retaliate in a variety of ways, including nationalization of Taiwanese holdings, which could spark a collapse of the Taiwanese economy.

March 8, 2006: Defense spending will increase 14.7 percent next year (to $35.2 billion). That's the for the official defense budget. Many military items are buried elsewhere in the government budget. This is a common practice in dictatorships. China's defense spending is apparently closing in on $50 billion a year. That's about two percent of GDP, compared to twice that rate for the United States. Most defense spending goes to maintaining poorly trained troops and obsolete weapons. Some of the additional money will go to raises for professional soldiers, who are harder to get because of the booming economy. But a lot of the additional money is spent on new weapons, and training for those who operate them.

More importantly, the government announced new spending for the rural population, which is meant to address the slow-growth rural economy. The biggest problem in the countryside, where most Chinese still live, is corruption by local officials, many of them members of the Communist Party. One of the more common scams is seizing farmland for development projects, and not paying a fair price. This has millions of rural residents on the verge of rebellion. Now, the government says it will pay market rate for expropriated land. Other infrastructure programs are planned as well. This will buy time, but if it turns out that the local officials are just stealing the additional money, unrest in the countryside could get out of control within a year.

March 7, 2006: Government officials, especially police, have been ordered to cut down on eating out, and to lose weight. Tales of corrupt government officials are corroborated by the abundance of overweight policemen and bureaucrats.

March 4, 2006: A Chinese military delegation is visiting Cuba, apparently as part of an effort to compete with Russia in the bargain-basement weapons market. Cuba is getting money from Venezuela, and needs to upgrade its decrepit armed forces.

February 24, 2006: China now has over 400 million mobile phone users. Cell phones have revolutionized Chinese society, breaking the government monopoly on information. While landline phones were expensive and hard to get, cell phones quickly became a "must have" technology, and economic liberalization allowed the cell phone industry to grow with few restrictions. The government cannot effectively monitor cell phone use, and news the government would like to censor now spreads quickly via the nationwide cell phone network.


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