China: Big Brother Blues

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March 8, 2022: One Chinese custom little understood in the West is that China does not have allies; it has trading partners or tributary states. The latter are seen as a family-type relationship where China is the elder brother and tributary states like North Korea and Russia are younger brothers. North Korea accepts and understands this situation because Korea has been subject to it for centuries. South Korea has broken free of this relationship, which is one reason why China is so hostile to South Korea. Russia is a new member of the family, even if Russia does not officially accept that. That’s irrelevant because Russia is increasingly dependent on China economically, diplomatically and militarily. China also has claims on most of the Russian Far East (Pacific coast) and has never renounced these claims. With that in mind, China is not pleased with the behavior of its younger brother. Despite that, family is family.

Officially, China supports Russian efforts to deal with “Ukrainian aggression.” Unofficially, China is critical of the Russian war on Ukraine, if only because of the negative impact on Chinese trade and diplomacy. China was a major customer for Ukrainian military tech and wheat. That trade is disrupted and will take a while to recover, no matter who wins.

There were other problems. China was not happy with the poor performance of Russian troops in Ukraine. China was kept informed about the preparations for the invasion and asked Russia to wait until the Winter Olympics in China were over on February 23rd before invading. The invasion began before dawn on the 24th and was, according to Russia, supposed to be over in fifteen days. After about a week, China concluded that the Russian plan and the Russian military had failed. Russian troops quickly ran into trouble because of the unexpected stiff resistance by Ukrainian troops and armed civilians. China initially remained silent about the invasion and as the Ukrainian resistance increased, along with unprecedented sanctions imposed by Russia’s Western trading partners, China refused to openly support the Russian operation. China was also dismayed at the degree of European military support for the Ukrainians, despite Russian threats of nuclear retaliation. That did not dissuade the Europeans or Americans, just as it had not worked on China during their 1969 border war between Russia and China. In 1969 China had recently tested its first nuclear weapon but did not have a nuclear retaliation capability. Russia approached the Americans about joining in a nuclear attack on China. The Americans refused and criticized the Russian threats to use nukes. When China found out about that, there was a warming in the long-frosty relations with the Americans which soon (1972) led to the U.S. recognizing the Chinese communist government.

The Chinese consider themselves more astute students of history than Russia and now believe that the invasion was poorly planned and carried out. China is more willing to acknowledge problems with readiness and training in their own military, lessons that Russia appears to have forgotten. Any perceived Chinese support of this Russian disaster causes problems for China, as well as inspiring the Chinese military to pay more attention to avoiding the Russian approach.

China is not assisting Russia economically. To do so would be expensive, reward Russian bad judgment and imply Chinese approval of the Ukrainian operation. With no Chinese economic lifeline available, Russia is under more pressure to end the Ukraine operation as soon as possible. The Russian plan was to rush in and occupy key areas, like the capital Kyiv and all Ukrainian ports, and then declare the war ended and call for negotiations. Russian leader Vladimir Putin either ignored or didn’t believe reports from his military and diplomatic analysts that Ukrainian president Zelensky had a lot of popular support and since 2014 Ukraine had prepared for a Russian invasion. This is why so many prominent Russians have risked arrest by openly criticizing the invasion. China has less openly agreed with these critics by refusing to rescue Putin and the Russian economy. Putin will have to convince Big Brother that a mistake was made and that it won’t happen again because in the future Elder Brother will be kept informed and permission obtained for such risky undertakings. It’s unclear if Putin got the message or would remain the Russian leader. Over the last two decades Putin has centralized power to an extent not seen since the Soviet era. This was deliberately done to make it difficult for Putin to be removed. A nudge from Elder Brother China might be all it takes to replace Putin. With or without Putin, Russia is now weaker and less able to resist Chinese efforts to economically and diplomatically dominate the Central Asian states that used to be part of the Soviet Union. China has also been investing more money in the “lost territories” in Pacific Coast Russia. More Chinese are coming into these territories to live and do business while, since the 1990s, more Russians left. China expected to eventually take control of the lost territories economically and with a lot of Chinese residents. The Ukraine-related sanctions have sped up this process.

One less favorable side effect of Russian failure in Ukraine is that it increases the resolve of Taiwan to resist Chinese threats as well as an actual invasion attempt. Also damaged is the ability to maintain and increase control over the South China Sea, which China has been illegally claiming as Chinese because of faked “historical documents” about Chinese activity centuries ago that never happened. The Ukraine debacle and Chinese association with it also weakens Chinese efforts to deal with increasing foreign efforts to make China behave in its dealings with trade partners and curb the Chinese theft of foreign trade secrets and IP (patented Intellectual property). The United States took the lead in this area back in 2018 with an unprecedented trade war that cost China over half a trillion dollars and forced compliance. This encouraged other victims of the predatory Chinese trade practices. All this is long overdue but is an example of how bad news often comes in bunches. This is changing the world in which China does business and exercises military and diplomatic power.

Covid Complications

Chinese problems with covid19 are proliferating. There are still outbreaks in China and the use of misinformation and disinformation to deny that the virus came from China are unraveling. Chinese efforts to conceal the origins of covid19 eventually backfired. Initial evidence was that covid19 first appeared in Wuhan during late 2019. Chinese doctors complained that the government would not take action, as China had earlier said it would. Instead, those outspoken doctors were ordered to remain silent or else. Several of those doctors died of covid19 while a few others got out of China and were largely ignored, at least initially, by Western governments. China insisted that they had limited covid19 deaths to a few thousand and their lockdown approach kept reinfections from spreading. China tried to blame infected American soldiers, who arrived in China for a mid-2019 planned event. This claim was denied by the United States which tended to go along with the rest of the Chinese version. That eventually changed as the covid19 infection and death models proliferated and were accepted. The actual deaths in China were nearly two million. China continues to stand by its original claims but even WHO (the World Health Organization) and epidemic specialists in other countries are no longer supporting Chinese claims. The Chinese government took a big risk by not providing accurate and early reports about covid19, which they were legally required to do because of international criticism of earlier Chinese refusal to share data on new covid-type diseases. China also developed its own covid19 vaccines, which are actually not vaccines in the classic sense of providing immunity. All covid19 “vaccines” are actually antiviral medications that will lessen the impact and spread of covid19. Such antivirals have long been used to lessen the impact of the annual influenza outbreaks, which are always different because influenza, like covid19 and the common cold, constantly mutate and change. China tried to steal the superior antiviral tech the West had created and went ahead with less effective Chinese vaccines/antivirals. While most Chinese have received the Chinese antivirals, that means they are more vulnerable to continuing outbreaks of covid19.

China is a communist police state, but like all similar governments they monitor public opinion and some senior officials saw covid19 as a potential disaster for the government and worth the effort and risks to suppress details of its origins. China took a chance with covid19 and lost. This covid19 side-effect may be the most lasting and damaging of all.

In contrast to Chinese and Russian woes, India continues to have fewer problems with covid, control of its military and internal unrest, most of them coming from leftist rebels who survive in eastern India. Border disputes with China have been less active because China has more economic problems at home as well more damage from covid19 than they ever wanted to admit. The Pakistani economy is also doing poorly and that is related to their military and its activities in Afghanistan. India is still in a weak position against China and this has prompted long-overdue reforms in how the Indian military was supplied and managed. This means a more effective Indian military and a government that will tolerate honest and accurate analysis of military threats.

March 5, 2022: The increased sanctions on Russia have made it difficult for Chinese customers to buy Russian oil. Russian oil companies cannot work with foreign banks or insurers cannot handle Russian business so the Russians are forced to use alternative methods that mean their oil is sold to Chinese customers at a discount of ten to fifteen percent or more. The Chinese buyer has to pay in advance and in cash to make this work. Most other customers for Russian oil don’t buy Russian oil for now and Chinese customers only buy Russian oil because it is convenient and suitable for Chinese refineries. The Chinese government unofficially condones these alternative financing methods, while the Russian government does likewise. Chinese currency is a lot more valuable inside Russia now because the Russian currency has declined considerably since the new sanctions went into effect. Western credit card operations like Mastercard and Visa are no longer working in Russia or overseas for cards obtained through a Russian bank. Even China has to do the equivalent of barter trade with Russia. China depends on Russia for grain and other raw materials. As humiliating as it is, Russia uses a lot more Chinese currency internally because of the sanctions.

For China, the Russian invasion is something China warned against because it was reckless and something that China avoids at all costs. Now that the Russian invasion has failed and suffered unprecedented economic sanctions. China is making the most of that and making Russia even more dependent on China. China allowed Russia to use the Chinese credit card network and a new China controlled international banking system. This system is still small and new members tend to be outlaw states, but it’s a start. Ukraine, which has done a lot of business with Russia over the last decade, is aware that China could order Russia to halt their invasion and deal with the aftermath via negotiations. It suits China to allow Russia to weaken itself further and become more dependent on China. This is the Chinese long-range strategy to defeat Russia and retrieve the Pacific coast territory lost to the Russian monarchy centuries ago. For the moment China goes along with the Russian version of the war, in which Russia is simply defending itself from NATO aggression. China intends to be the only winner in this war and so far that is happening.

March 4, 2022: The 2022 Chinese defense spending is 7.1 percent higher than 2021. That means $230 billion, compared to the American $770 billion. Government spending in general is up 14.3 percent, to $2.1 trillion, compared to the U.S. $6 trillion. Less predictable is economic (GDP) growth, which China hopes will hit 5.5 percent in 2022. This comes after an 8.1 percent GDP jump in 2021. This came after barely any growth in 2020.

For nearly a decade, GDP growth has been declining, often faster than government predictions. Before the virus hit at least six percent GDP growth in 2020 was expected. Despite the economic problems the 2020 defense budget increased 6.5 percent, to $179 billion. In 2019 the increase was 7.5 percent.

While the military gets more money, it is at the expense of repairing the economic damage done by the months of covid19 related quarantines. Three decades of rapid economic growth was accompanied by a lot of corrupt activity. Before the covid19 crisis China hoped to maintain GDP growth of at least six percent while at the same time continuing to safely reduce (“deleverage”) the huge number of bad loans local governments and corrupt banks have taken on since the 1990s. That plan is less viable now.

The economic decline began in 2018 and could be measured in many aspects of economic activity (production, orders for raw materials, finished goods or construction and so on) and sentiments (of people running the economy and consumers). Chinese stock markets were down over 30 percent by the end of 2018 and for the first time in three years profits of industrial firms took a dive. These trends continued into 2019, made worse by trade war with the United States and economic fears over the fate of Hong Kong. The Chinese consumer grew more cautious. Retail sales were down overall, despite increased use of online sales via Alibaba (the Chinese Amazon). Chinese have been hearing the rumors or witnessing the realities of economic problems, such as corruption, bad loans, foreign firms leaving, labor unrest, unreliable economic statistics and so on and have noted the government has no quick fix, or maybe no fix at all. Then came covid19 at the end of 2019. One reason local (in Wuhan) officials tried to conceal and downplay the virus threat was the proliferation of bad news since 2018 and the national government was demanding that local officials do better or else.

Things did not get better and after three years of covid19 the damage to the economy is much worse than expected. Before the virus hit thousands of Chinese firms were faced with bankruptcy and there was insufficient lending capacity by Chinese banks to prevent the bankruptcies and loss of jobs. So far, the government has not risked widespread bank failures by ordering new loans anyway. In part that is because the government has also decided to risk losing the financial benefits of Hong Kong by canceling its special status. It was that special status and lack of corruption that brought many foreign banks, and other businesses to Hong Kong. With Hong Kong operating like the rest of China there is much less reason for foreign firms to remain in Hong Kong.

March 3, 2022: In the South China Sea the U.S. Navy recovered the wreckage of an F-35C stealth fighter that had crashed into an aircraft carrier on January 24th while attempting a landing. The F-35C sank to the sea bottom 3,780 meters (12,000 feet) below. The pilot safely ejected from the F-35C but the wreckage would have been an intelligence goldmine if China had recovered it. American warships stood guard at the location where the F-35C was lost until the salvage ship arrived to begin the recovery process, which normally takes a week or more.

The recovery ship was built in China. While the Chinese shipbuilding industry continues to expand the types of specialized ships it sells, it is still facing serious competition from South Korea, which had more orders for new ships than China in February. South Korea was long he number one producer but during the last few years the lead has been changing month to month. Three months ago, South Korea had another winning month. South Korea has become a serious economic competitor for China, which has a much larger economy and population. South Korea had a GDP of $1.8 trillion and a population of 51 million compared to $18 trillion for China and a population of 1,400 million. South Korea is now the tenth largest GDP in the world.

March 2, 2022: Off the southeast coast of Taiwan, Chinese warships were spotted near Orchid Island, a small (45 square kilometers) tropical island popular with fishing boats and tourists. This was the third time in four days that Chinese warships approached the island. This was unusual activity for the Chinese, who had never shown this much interest in the island. The Chinese ships never violated Taiwanese territorial waters (within 22 kilometers of the shore) and usually stayed 60 to 90 kilometers from the island.

February 26, 2022: China is being blamed for the many Russian army truck breakdowns in Ukraine. The Russian army saved money by buying cheaper Chinese copies of American and European truck tires. This worked as long as the trucks stayed on roads, but when the Russians trucks went off the road, or had to travel on a dirt road mired in springtime mud. The Russian army also Chinese truck spare parts and commercial radios for use by the military. Many of these items also failed in the mud and rain. This is the reason why a 69-kilometer-long column of Russian military vehicles headed for the Ukrainian capital slowed and halted. Cell phone videos of abandoned vehicles taken by Ukrainian soldiers and civilians made it clear why the massive convoy, and others like it were moving so slowly, if at all, inside Ukraine.

February 17, 2022: An Australian P-8A maritime patrol aircraft observed Chinese warships moving along the north Australian coast. When the P-8A went closer the Chinese destroyer aimed its laser at the aircraft, endangering any of the crew observing the ship and not wearing laser safety glasses. China denied any involvement but Chinese government- controlled mass media in 2019 and 2020 published articles promoting the use of laser devices against American aircraft that overfly parts of the South China Sea that China claims are now Chinese. International treaties and court rulings say otherwise but the Chinese openly ignore these treaties and court rulings. China increasingly talks of confronting trespassers with force.

February 15, 2022: In the northeast, on the North Korean border China has resumed food shipments via railroad and trucks in an effort to prevent a government collapse in North Korea and a flood of desperate North Korean refugees seeking salvation in China. While China is less concerned about North Korean missiles and nukes, that threat has turned South Korea, Japan and the United States into a more effective coalition opposing North Korean plans. For once South Korea and Japan have put aside decades of disputes over Japanese crimes during their four decades occupation of Korea that ended in 1945. Those grievances will never be forgotten but for the moment the North Korean threat has taken priority.

North Korea is bankrupt and not getting better. Covid19 made matters much worse because North Korea was totally unprepared to handle it and responded by shutting its borders and restricting movement within North Korea. This crippled an already weak economy and efforts to deal with the threat of another fatal famine. Even the security forces were getting less food and the emergency military food reserve was used up.

Big Brother China is openly losing patience with its unruly neighbor. China is, literally, North Korea’s economic lifeline. China is the primary or only source for essentials like petroleum, food and all sorts of smuggled goods, past a long list of international sanctions. China will tolerate a lot of bad behavior in return for obedience and maintaining order along the Chinese border. North Korea is failing in both categories. China still asks the West to eliminate some of their sanctions, even though the West is where all those new North Korean missiles and nukes are aimed.

Everyone looks to China because Korea has traditionally been a Chinese responsibility and, most of the time, a difficult one. North Korean leader Kim Jong Un has obediently gone to China several times since 2018 to receive criticism described as advice. Kim also met with the leaders of South Korea and the United States. So far lots of the right words but little action. China and everyone else fears that North Korea is going to try and scam its way out of another tight situation and risk the very real wrath of China while doing it. Inside North Korea the official word is that the nuclear weapons are essential and not negotiable. Unofficially, more North Koreans want a change of government or a way to get out. Meanwhile South Korea continues to visibly prosper, with GDP per capita that is more than 20 times larger than North Korea. Being caught viewing videos of life in South Korea or South Korean video entertainment, is now a capital (death penalty) offense in North Korea.

February 8, 2022: A short video appeared on Chinese social media showing what appears to be a new class of coastal submarine moving south on the Yangtze river towards Shanghai, where there is a naval base used to prepare submarines, built in Wuhan, for sea trials. The new sub appeared to be coming from a shipyard in Wuhan that specializes in building submarines. The video later disappeared from Chinese Internet sites, usually indicating someone had posted something the government considered a state secret.

February 6, 2022: The new Taliban IEA (Islamic Emirate of Afghanistan) government is seeking Chinese help in upgrading the Afghan cell phone networks and adding spying and censorship capabilities. Afghanistan is seen as a potential market by Chinese firms but their government is not so sure and advises Chinese firms to proceed at their own risk. Afghans who can afford it still have access to cell phones and the Internet, something the IEA wants to stop and is seeking help from China in that area. China does not give it away and is wary about any economic deals with the IEA. China openly supports recognition of the IEA as the government but will not do so itself. Instead, China allows interested and intrepid Chinese firms to send delegations to Afghanistan to explore the possibilities of trade with Afghanistan, especially access to the trillion dollars’ worth of mineral deposits known to exist in Afghanistan. Those Chinese delegations have been in Afghanistan since late 2021 and so far, no announced deals.

Elsewhere in the region investment opportunities are less risky. Iraq has found China willing to invest in the local economy, especially if it includes developing or operating oil production facilities. Iraq is also aware of the Chinese proclivity for eventually using these investments as political and diplomatic tools to achieve whatever local goals China had. Neighboring Iran is even more eager to get Chinese investments but Iran is operating under a growing list of sanctions, which makes it more difficult for China to operate there.

 

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