Topic: The Chinese Military,Political and Social Superthread

[Kirkhill]

Reposting this in the correct thread because I screwed up previously.

We may not see the "discussion" between China and the West as a struggle, much less a conflict but not everybody necessary sees the situation in the same light:

China unwavering on Syria in new UN vote

China voted against a draft resolution on Syria at the UN General Assembly Thursday, days after it vetoed a UN Security Council draft resolution pressing for regime change in Damascus.

The country's courage to truly express itself and to calmly stand its ground is worthy of merit. Some Western media ridiculed certain nations, including China and Russia, for these choices. The trajectory of China's influence on world politics is rising. The West should be advised to reduce its expectations on abstention votes by China. Like it or not, China's stance must be taken into more serious consideration.

Politics serve to secure national interests on the global stage. Western powers are privileged to interpret interests and ethics at their own will due to their obvious dominance of public opinion. They label the 12 countries who voted differently to them at the UN as being "unethical." China should never be fooled by this hypocrisy.
 
The US and Israel were the only two nations that were against a draft resolution on Cuba at the UN Assembly in November. The US appeared to be more isolated than the current 12 nations. Washington acted against public global opinion despite its monopoly of the world's richest resources and leverage in directing the world's development.

China must act confidently and proactively in implementing its diplomatic strategy. China's vote, representing one-fifth of the entire world population, deserves its due respect.

It is wrong to blindly come down on the side of the West in each vote. Calls for China to vote in along with "universal values" can frequently be heard online. But that is a mere reflection of diverse and vibrant public voices.

Western values that contradict China's rise would eventually infiltrate global affairs and consequently seek to weaken China in various ways. As China rises, so will the pressure it faces. China appears to be an easy target for some Western media.

A lack of confidence is the root cause for the unease of some Chinese when faced with Western accusations. Confidence comes from looking at facts from a historical perspective. 

We have to halt the stereotyped view of China, which is a player more willing to make concessions to avoid trouble. They should be advised to look at China as a country that does not bring unnecessary trouble, but also never shuns away from dealing with trouble head-on. 

We are a peace-loving nation, which has not been involved in any military conflict for more than two decades. In sharp contrast, countries such as the US and Britain have engaged in numerous wars during the same period. Now, they think to lecture us on justice. Surely, they cannot ignore the irony.

The Link

Russia, China, And India Should Not Let The West Have Its Way In Syria

No matter how India looks at it, the end result is that for its own interests and for the interests of the whole world, India should join Russia and China to stand up against the western aggression against Syria and Iran. India should not let Syria become another Libya. If Syria falls, then the West is going to go after Iran. India has very crucial economic relations with Iran. The two countries have a long history of friendly relations. India cannot let the West dictate its relations with Iran. It is the western domino game plan. Libya, Syria, and then Iran. Can India guess who is next? Do not exclude yourself. Look what happened to the Indian friends: Iraq, Libya, the Soviet Union, and Yugoslavia!

By Dr. Sawraj Singh

Russia, China, and India should realize that Syria is the last battle for maintaining the western domination and the American era. If Russia, China, and India can join their forces and block the west in Syria, then the western domination of the last two centuries will end, and the unipolar world order, under the western domination and the American leadership, will be replaced by the multipolar world order. The most important thing for Russia, China, and India to understand is that they are not fighting Syria’s battle, but are fighting their own battle. None of the three countries can have a respectable status in the current unipolar world, and they need a multipolar world to get a proper and fitting status. Therefore, they are fighting their own battle.

Russia and China vetoed the resolution on Syria in the Security Council in the UN. This has drawn an unprecedented response from the western countries. The western media is blaming them for the situation in Syria. However, the truth is that the western countries are using their agents and terrorists to incite violence in Syria, so that they can use the violence as an excuse to attack Syria, just like they did in Libya. The West is using the UN and human rights as a cover for their aggression. Navi Pillai is trying to become an accomplice to this aggression by criticizing Syria for human rights violations. Obviously, she wants to make Syria another Libya. The whole world can see the West’s true face as far as human rights are concerned, in Libya. The most brutal and barbarian acts have been committed in Libya by the West and its agents and lackeys. The West wants to repeat this performance in Syria.

If the West succeeds in Syria, then the western domination may last for another half century. The West was defeated in Vietnam, and that was supposed to be the end of the western domination. However, by exploiting the difference between Russia and China, the West extended its domination for a half century. Now, by not letting Russia, China, and India unite, it may extend its survival for another half century.

Russia and China seem to understand the western designs better than India. Being a Hindu majority country, the West’s propaganda against Islamic fundamentalism and terrorism throws India off balance. India does not realize that almost all the so-called Islamic fundamentalist and terrorist groups have been created by the CIA. Can India not see that all the secular regimes in the Islamic countries have been toppled by these groups in collaboration with the West? Iraq and Libya went through that, and now the same thing is happening in Syria. What more proof does India want? The truth is that not only the so-called Islamic fundamentalists, but almost all extremists, fundamentalists, and fanatics in every religion are blessed by the CIA. The west can incite any kind of fundamentalism, extremism, and fanaticism to advance its cause. India should have no illusion that being a secular state, it has already been targeted by the CIA for balkanization and disintegration after the Soviet Union and Yugoslavia.

If India wants to remain a secular and neutral country, then it has no other choice but to join Russia and China to expose and counter the western designs. Syria and Iran are very good opportunities for India to revive its credentials of secularism and neutrality. This is also the best time to revive the traditional friendship with Russia.

India should realize that Russia and China are going to stand firm against the western hooliganism, arrogance, double standards, and hypocrisy, whether India joins them or not. However, if India joins them, then it will be in the best interests of not only the Indian people, but of the whole world, including the American and the European people. Without India, the West may not fight a Third World war with Russia and China, because it may find it difficult to match China’s manpower. Therefore, with India joining Russia and China, the chances of a peaceful transition from a unipolar to a multipolar world order increase. This is in the best interests of the people of the world: to preserve peace and harmony in the world. India can play a crucial role.

No matter how India looks at it, the end result is that for its own interests and for the interests of the whole world, India should join Russia and China to stand up against the western aggression against Syria and Iran. India should not let Syria become another Libya. If Syria falls, then the West is going to go after Iran. India has very crucial economic relations with Iran. The two countries have a long history of friendly relations. India cannot let the West dictate its relations with Iran. It is the western domino game plan.

Libya, Syria, and then Iran. Can India guess who is next? Do not exclude yourself. Look what happened to the Indian friends: Iraq, Libya, the Soviet Union, and Yugoslavia.

Dr. Sawraj Singh, MD F.I.C.S. is the Chairman of the Washington State Network for Human Rights and Chairman of the Central Washington Coalition for Social Justice. He can be reached at sawrajsingh@hotmail.com.

[tomahawk6]

China’s Falkland Islands Lesson

http://the-diplomat.com/flashpoints-blog/2012/02/21/china’s-falkland-islands-lesson/

We’re rapidly approaching the thirtieth anniversary of the Falklands War (April to June 1982), which saw the British military reclaim the United Kingdom’s remote South Atlantic island possessions from Argentine invaders.

Gen. Sir Michael Jackson, a former British Army chief of staff, recently made headlines when he proclaimed that defense cuts make it “just about impossible” for British naval forces to wrest back the Falklands should Argentina occupy them again. The Royal Navy retired aircraft carrier HMS Ark Royal last year, leaving the navy with zero capacity to project fixed-wing air power by sea until the troubled Queen Elizabeth-class flattops enter service, presumably around the end of this decade. London also sold the nation’s entire inventory of Harrier jump jets to the U.S. Marine Corps for spare parts, leaving the navy with zero air power to project until the F-35 Joint Strike Fighter enters service, also around the end of the decade.

Like nature, power politics abhors a vacuum. It’s probably no coincidence that Buenos Aires is ramping up its demands for the islands as Britain’s capacity to re-conquer them dwindles. Economically stagnant Argentina desperately wants to tap the natural resources found in the waters and seabed adjacent to the Falklands. A recent series of oil discoveries – most recently in the “Sea Lion” field eighty miles north of the islands – has spurred talk of a “black gold rush” in the South Atlantic. Argentine President Cristina Fernandez de Kirchner has reproached London for exhausting “Argentinean natural resources” while vowing to “get [the islands] back.” Meanwhile, Britain’s shrinking expeditionary capability has reduced officials like Brig. Bill Aldridge, commander of British forces in the South Atlantic, to insisting that it matters little whether the British military can recover the Falklands; it will never lose them in the first place. Declares Aldridge, “I am not expecting to hand the islands over to anybody and therefore put us in a position to have to retake the islands.”


Maybe hope really is a strategy!

The latest kerfuffle has caught some attention beyond Argentina and the British Isles. You can bet strategists in China are monitoring events in the South Atlantic closely. These are people who do their homework. They afforded the 1982 conflict close scrutiny, finding much to commend and condemn on both sides, and many lessons to learn. A few years ago, my colleague Lyle Goldstein read their commentary on the Falklands and wrote an article documenting their findings. It only makes sense that Beijing would regard the campaign as a source of guidance for contemporary strategy. Just look at the map – a Western sea power fought a short war to reverse a weaker regional power’s seizure of islands it considered sovereign territory. Geography compelled the extra-regional power to stage military operations across thousands of miles of ocean, where the local power enjoyed such advantages as proximity to the combat theater, abundant manpower and resources, and intimate familiarity with the surroundings.

Sound familiar?

What lessons about strategy, tactics, and force structure is Beijing likely to derive from the British experiences then and now? Lyle’s article is worth reading in its entirety, but here’s the bumper sticker for the guidance China takes from the conflict: a local power can overcome a stronger outside power if it is more willing than its antagonist to bear the costs and hazards of war, makes good use of its “home field advantage,” and acquires certain specialized weaponry in adequate numbers.

For example, Chinese commentators highlight the battle damage inflicted by Argentine Super Étendard fighter jets firing Exocet anti-ship cruise missiles. When I taught firefighting and damage control in the 1990s, we started off each new class by showing a film from the Falklands. My favorite part was when the skipper of the sunken HMS Sheffield recalled thinking it was “slightly bad news” when he heard an explosion and turned to see one of the ship’s gun mounts spinning around in the air high over the ship. Monty Python humor aside, the death of the Sheffield confirmed that sea-skimming missiles could evade modern shipboard air defenses and wreak lethal damage. Whether this inspired the People’s Liberation Army Navy to premise its anti-ship tactics on “saturation attacks” that overwhelm a fleet’s defenses is an open question. More likely, such encounters reaffirmed tacticians’ preexisting preference for cruise missiles as an implement of war. Had Argentine aviators possessed more than a few Exocets, conclude Chinese observers, the outcome of the conflict could have been far different.

Or, there’s undersea warfare. Both navies put submarines to effective use as an offensive weapon; both performed miserably at finding and sinking enemy submarines. A Royal Navy nuclear-powered attack submarine made short work of the Argentine cruiser General Belgrano, prompting the Argentine surface fleet to stay safely out of range for the rest of the war. For their part, Royal Navy anti-submarine crews were unable to reliably classify sonar or magnetic contacts, so they “classified targets with ordnance.” That’s a fancy way of saying they dropped anti-submarine munitions on anything with a signature remotely resembling that of an Argentine boat. This ham-fisted approach had a perverse strategic effect: it virtually exhausted the Royal Navy’s war stock of antisubmarine weaponry at a time of surging tension in the Cold War. The division of labor among NATO fleets assigned British mariners the task of policing North Atlantic waters for Soviet craft. That was hard to do once the Falklands campaign emptied Royal Navy warships’ weapons magazines. Lesson: antisubmarine warfare is hard even for the world’s most advanced navies.

How will the PLA Navy and the shore-based arms of Chinese sea power put such lessons to work in future conflicts? Savvy commanders might strike at U.S. Navy reinforcements steaming westward across the Pacific far from Asian coasts, wearing them down during their long voyage. Argentina missed several opportunities to make things tough on the oncoming British task force before it reached the theater. That China would repeat this mistake is doubtful. Targeting logistics vessels carrying supplies to U.S. carrier or amphibious groups, for instance, would be a convenient way to disrupt any relief operation off Taiwan or some other hotspot. These lumbering ships are few in number, carry token defensive armament, and often cruise without protective escorts. They would be easy pickings for Chinese submarines, let alone multidirectional cruise-missile strikes of the kind Chinese rocketeers envision. Take out the oilers, refrigeration ships, and ammunition ships, and the fleet withers on the vine.

In short, as they consider how to pierce Chinese “anti-access” defenses, U.S. strategists could do worse than investigate what pundits from the “red team” are saying about the Falklands dispute – then and now.

James Holmes is an associate professor of strategy at the U.S. Naval War College and co-editor of the forthcoming ‘Strategy in the Second Nuclear Age’ (Georgetown University Press). The views voiced here are his alone.

[E.R. Campbell]

Although this, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is a Canadian business story, I suspect it is a common problem for acciunting/audit firms from many countries and I also guess the problem is not limited to China:

http://www.theglobeandmail.com/globe-investor/canadian-audits-of-chinese-based-companies-under-fire/article2344920/

Canadian audits of Chinese-based companies under fire

JANET MCFARLAND

Globe and Mail Update
Published Tuesday, Feb. 21, 2012

Canadian accounting firms are doing “disappointing” work when they audit the financial statements of Chinese-based companies that list their shares on Canadian stock exchanges, according to a new review by Canada’s audit regulator.

The Canadian Public Accountability Board released results Tuesday of a three-month review examining the work of Canadian audit firms who have Chinese clients, and said it found major gaps in the audit work. One unidentified audit firm has been restricted from taking any more Chinese clients, while others were required to do additional work on 12 of the audit files that were reviewed.

“The disappointment we had was a lot of things that we felt were fundamental auditing processes and procedures were just not applied,” CPAB chief executive officer Brian Hunt said in an interview Tuesday.

“It’s just a disappointment on our part that things we would consider fundamental here in Canada just were not done, and I’m at somewhat of a loss to explain it.”

The report does not identify the audit firms whose work was reviewed, but Mr. Hunt said they include the major national audit firms as well as a number of smaller firms that offer auditing of Chinese companies.

CPAB said nine of the 12 files that required additional work after CPAB’s review involved smaller regional or local audit firms, but it also noted that it could not review all the documentation for six of the audits involving major national firms because the work was performed by affiliated firms in foreign countries and the paperwork was not available.

“It was therefore impossible to fully evaluated the quality of work performed by the affiliated firms,” the review states.

Mr. Hunt said he also could not identify the 24 public companies whose audits were reviewed, and would not comment on whether Sino-Forest Corp. was one of the audits scrutinized.

The Chinese-based forestry saw its shares suspended last summer on the Toronto Stock Exchange after the board of directors launched a review of its business practices following accusations from a short seller that the firm was operating as a “Ponzi scheme.” The Ontario Securities Commission is still examining the company’s operations.

Mr. Hunt said he does not believe the problems identified are unique to audits of Chinese companies, and said CPAB plans to expand its review this year to audits of other companies based in developing countries whose shares trade in Canada. He said the further reviews will look at companies based in Russia, India, Brazil and other locations.

Auditors must understand that business practices vary in many other countries, and they have to be more alert to possible problems, Mr. Hunt said. For example, he said audit firms must be more careful when getting confirmations of bank balances or accounts receivable in other countries, and in confirming ownership of assets held by the company.

Indeed, CPAB found some auditors were not even applying typical Canadian standards when seeking confirmations. For example, the regulator said it found cases where management controlled the gathering of external confirmations – instead of the auditors themselves contacting the banks or third-party creditors.

Despite the concerns, Mr. Hunt said he believes there is no reason for CPAB to suggest Canadian audit firms should not audit the books of foreign-based companies.

“I think the audit firms do have the capabilities and the talent to do it. There are language barriers, but that’s not typically a show-stopper,” he said.

“The real issue is understanding the unique business practices, and that’s where our disappointment is that a lot of the firms that went over to do these audits just did not recognize that there are differences.”

"Disappointment" is a pretty strong word for auditors to use about colleagues - it means, I think, that Canadian auditors were helping their Chinese clients to "cook the books, to fool the Canadian securities regulators.

But, I repeat: I suspect there are similar irregularities to be found in US, Japanese and European audits of Chinese companies and of Western audits of other Asian firms.

[Thucydides]

While much of the evidence is circumstancial, it is interesting to see who benefits from the demise of Nortel:

http://business.financialpost.com/2012/02/25/nortel-hacked-to-pieces/

Nortel hacked to pieces
Jameson Berkow  Feb 25, 2012 – 9:30 AM ET | Last Updated: Feb 25, 2012 11:19 AM ET

Sara D. Davis for National Post

Under mounting pressure to prove China-based hackers had infiltrated the vast global computer network of Nortel Networks Corp. all the way to the chief executive’s terminal, Brian Shields felt he had no choice but to go rogue.

Armed with nearly two decades doing security for the now-defunct Canadian company whose technology still powers telecommunications networks around the world, he had spent a day just before Christmas 2008 digging through the Web browsing history of then CEO Mike Zafirovski, known to colleagues as ‘Mike Z’. Mr. Shields was convinced there were criminals working on behalf of China’s Huawei Technologies Co. Ltd. accessing the CEO’s files, but his hunch hadn’t been enough for his immediate bosses to grant him direct access to the top man’s PC.

“I went on my own then and pulled the Web logs from Mike Z. since I had access to those kinds of logs back then,” the 53-year-old Nortel veteran recalled. It was there he finally found the digital smoking gun he had spent years trying to find.

“I went through about two months and, sure enough, I found that right in the middle of a Yahoo session he had some activity go over to Beijing that didn’t fit in with any of the other URL information that was showing up. It didn’t belong there, it just didn’t. This was rotten.”

As reported by the Wall Street Journal this month, hackers had free reign inside Nortel’s network for more than a decade before the company went bankrupt in 2009. Now, in lengthy interviews with the Financial Post, Mr. Shields and a third-party digital forensics expert who worked on the investigation shed more light on the cyber criminals they were pursuing, their intentions and the inexplicable lack of response from Nortel’s senior staff.

The revelations serve as a wake up call not only to the companies who purchased Nortel’s infected hardware, but to the global technology industry at large.

The attackers were “clearly recent graduates of a Chinese polytechnic” who were “heavily in debt,” yet by 2009 seemed to have “more money than they ever imagined,” according to the third-party expert who works for a leading U.S. computer security tool vendor who requested anonymity.

Although never formally contracted by Nortel to aid the investigation, the expert had been sought out by Mr. Shields in the summer of 2008 for his advice and assistance in analyzing some of the machines he believed were infected. Nortel’s own anti-malware specialist had been unable to find any evidence of foul play, but Mr. Shields refused to let the matter drop.

“I thought [helping Brian] might land me some work down the line,” the expert said. “Nortel was, after all, still a very big company at the time.”

Not only did the expert’s analysis confirm that rootkits (malicious software designed to make certain processes running on a device invisible to basic inspection) existed on the machines identified by Mr. Shields, but that it was professionals who had put them there.

“Brian would wipe the hard drive of one of the machines and re-image it, then we did a second memory image within five minutes,” the expert said. “It was a lot cleaner but I still found a couple of artifacts that told me the rootkit was still there. So it was something sophisticated that was able to survive a reformat of the system.”

Once the hidden processes were discovered, the expert was able to trace the perpetrators to Chinese IP addresses, some of which also had accounts on a Mandarin-language bulletin board hosted just outside of Beijing. It was there the expert was able to glean personal details about the hackers and what they were doing in Nortel’s system.

“They were doing surveillance, intelligence gathering,” he said.

“They were watching what [programs] people were using, what they were doing, what emails they were reading and that is exactly what we would expect to see from someone who was basically engaged in espionage.”

Still, neither the expert nor Mr. Shields was able to establish a direct link between the hackers and their mysterious benefactors. Mr. Shields’ conviction that the Chinese government was involved on behalf of Huawei remains circumstantial at best: the Shenzhen-based company had surpassed US$100-million in annual sales to international markets in 2000, the year many Nortel historians mark as the start of the former Canadian corporate champion’s fall from grace. Huawei enjoyed rapid global growth from that point onward.

Today, many former Nortel customers — including BCE Inc., Canada’s largest telecommunications firm — have moved to Huawei. Analysts expect the privately held company will overtake Ericsson as the world’s largest telecom equipment vendor when it reports annual figures this spring, giving Huawei the crown once worn by Nortel.

China’s embassy in Washington issued a statement to the WSJ specifically denying any involvement in the Nortel hacking, saying “cyber attacks were transnational and anonymous” and shouldn’t be assumed to originate in China “without thorough investigation and hard evidence.”

Finger pointing aside, Mr. Shields believed he did have hard evidence of somebody hacking Nortel’s systems, even if he couldn’t prove who was paying them. Once he found proof of hackers breaching the chief executive’s own computer in late 2008, he presented his findings to Pat Cottrell, Nortel’s IT security manager at the time. Surely now, he thought, he would get the approvals and the attention needed to more thoroughly inspect Mike Z’s computer.

Instead, her response according to Mr. Shields was “Mike Z is a very busy man, he is trying to sell business units and we can’t be slowing him down and trying to interrupt him with memory dumps of his computer.” Ms. Cottrell declined to comment on this story, citing a confidentiality agreement with her current employer.

“I hit myself in the head,” Mr. Shields said. “[Mr. Zafirovski] wouldn’t have even known [the memory dump] had happened. It would have slowed his machine down for maybe 10 minutes.”

Mr. Shields says he struggled for resources ever since the breach was discovered by a Nortel employee based in the United Kingdom in 2004. He even spent several hours in November of 2007 explaining his concerns in a meeting he said was attended by several Nortel executives including Jack Reyes, vice-president of corporate security, and Randy Calhoun, Nortel’s director of corporate and systems security.

They told him to prepare an audit report, which Mr. Shields said he filed in early 2008 but that was never passed along to upper management.

Mr. Reyes could not be reached and Mr. Calhoun, now an independent security consultant based in Dallas, declined to comment. Mr. Shields had a reputation as someone who would “cry wolf,” Mr. Zafirovski told the WSJ.

“I may have been crying wolf,” said Mr. Shields. “That is what my boss was thinking, but the problem was, there was a wolf.”

The digital forensics expert who helped with the investigation “can understand, once [Nortel] started to sell off the company, why they wouldn’t want something like this to come to light.”

“I’m sure some of the people who bought Nortel assets out of the bankruptcy sale wouldn’t have paid as much if they knew they were getting a bunch of computers that were deeply infected with malware.

“Particularly the way Brian got fired [in early 2009] just when he was about to succeed made me and some of my friends really suspicious,” the expert said, adding “in the face of this evidence [Nortel] didn’t really take any action, which was odd.”

Last week, after reading about his report in the WSJ, someone working in the IT department at a buyer of one of the sold Nortel divisions — he declined to say which one; Nortel’s various assets were purchased by several different firms — got in touch with Mr. Shields.

“Can you please help me?” the employee said, according to Mr. Shields.

After learning the employee was the only one handling computer security at his company in addition to several other IT-related responsibilities, Mr. Shields had to decline.

“I said ‘Oh geez, oh man, you’ve already told me more than I needed to know’. They just don’t have people focused on this problem and that is part of the problem,” he said.

Despite an acceleration of high-profile cyber attacks against major global networks in recent years, many executives fail to recognize the potentially devastating nature of such cyber threats, said Gene McLean, vice-president and chief security officer at Telus Corp. from 2001 until 2008.

There is data to support this growing lack of awareness. Last October, security software giant Symantec Corp. released a study that found operators of telecommunications networks, power grids, water systems and other services of vital importance had grown “less concerned about threats and less ready” than they were a year prior even as attacks have grown more frequent and sophisticated.

“If it was a widespread infection — and [Nortel] was a global, well-known, respected organization at that time — you’d have a half-dozen people on that easily to find out what is happening and stop it. Once you’ve done that you certainly need to inform the corner suite; the CEO has to be aware,” Mr. McLean said.

“A good corporate citizen like Telus would certainly jump right on something like that. Others, hard to say.”

[Thucydides]

Another potential Black Swan. If the Chinese government is unwilling to give up control (or perhaps the social and cultural model of Chinese Civilization requires central control) then China may not be able to transition out of the current economic model, and be stuck in the "middle". I wonder if these sorts of social stresses being caught in the middle (rising expectations by the population, rising population pressure but a now fixed resource base to meet these needs) were the cause of previous breakdowns in Chinese history?

http://www.telegraph.co.uk/finance/china-business/9109683/China-risks-middle-income-trap-without-free-market-revolution.html

China risks 'middle income trap' without free market revolution
China’s spectacular catch-up growth is nearing its limits, leaving the country prey to the "middle income trap" over coming years unless Beijing embraces the free market and relaxes its suffocating grip over the economy.
 
China clearly needs to hack away a thicket of impediments, starting with the semi-feudal Hukou system that denies rural migrants rights to urban registration, or access to healthcare, education and housing in the cities Photo: EPA

A joint report by the World Bank and China’s Development Research Centre has warned that the low-hanging fruit of state-driven industrialization is largely exhausted.

"As China’s leaders know, the country’s current growth model is unsustainable," said Robert Zoellick, the World Bank’s president. "This is not the time just for muddling through. It’s time to get ahead of events."

Countries across Latin America and the Middle East saw catch-up growth in the 1960s and 1970s but then they hit an invisible ceiling and have mostly languished in the "middle income trap" ever since, with per capita incomes far behind the rare "break-out" states such as Japan and Korea. "If countries cannot increase productivity through innovation, they find themselves trapped. China does not have to endure this fate," it said.

There is no doubt that the existing model has hit the buffers on every front and risks "unbearable friction" with trading partners unless the trade surplus is brought under control.

China is running out of cheap labour from the countryside and faces a "wrenching demographic change" as the old-aged dependency ratio doubles to North European levels within 20 years, and is fast depleting aquifers in the North China plains.

It can no longer rely on imported technology to keep up blistering growth averaging 9.9pc since Deng Xiaoping began to throw open the economy in 1978 and unleashed the nation’s pent-up commercial energy. "China has reached another turning point in its development path when a second strategic, and no less fundamental, shift is called for," it said.

The report has been seized upon by Politburo reformers battling hardliners and vested interests. Li Keqiang, groomed to take over as premier this year, offered his "unwavering support" for the findings.

He faces tenacious resistance from factions within the party, who insist that the country’s resilience through the global capitalist heart attack of 2008-2009 has vindicated state control of key industries and banks.

The report said China’s growth will slow to 7pc later this decade and 5pc by the late 2020s even if China embraces deep reform. Stagnation lies in wait if it clings to the dirigiste model.

"The forces supporting China’s continued rapid progress are gradually fading. The government’s dominance in key sectors, while earlier an advantage, is in the future likely to act as a constraint on creativity," it said.

"The role of the private sector is critical because innovation at the technology frontier is quite different in nature from catching up technologically. It is not something that can be achieved through government planning."

The picture is complex. China already lets local leaders embark on bold experiments under its strategy of "crossing the river by feeling the stones", permitting a mosaic of different policies that marks it out from other catch-up economies.

However, the country clearly needs to hack away a thicket of impediments, starting with the semi-feudal Hukou system that denies rural migrants rights to urban registration, or access to healthcare, education and housing in the cities.

The report said a quarter of China’s state companies are loss-making and have a productivity growth rate two-thirds lower than private firms, yet they gobble up available credit. Those private companies that resort to the parallel market for credit face grave risks, and one leading tycoon faces the death penalty.

Restructuring these state behemoths cost 20pc of GDP in the early 1990s, and it will be worse this time since the investment bubble has been much larger. "Potential costs of reforming state enterprises may have climbed significantly because opaque accounting practices mean that some state enterprises have accumulated large contingent liabilities that will need to be revealed," it said.

If all goes well, China will be a "high-income" economy by 2030 and perhaps as dominant as Britain in 1870 or the United States in 1945, or indeed as flourishing as the Qing Empire itself in 1820 before the onset of catastrophic decline. Politics will decide.

[sean m]

Here is an interesting article from STRATFOR,

The State of the World: Assessing China's Strategy

http://www.stratfor.com/weekly/state-world-assessing-chinas-strategy?utm_source=freelist-f&utm_medium=email&utm_campaign=20120306&utm_term=gweekly&utm_content=readmore&elq=37f52ff891d14a67be453d549665bfe3

Taken from their website;

Simply put, China has three core strategic interests.

Paramount among them is the maintenance of domestic security. Historically, when China involves itself in global trade, as it did in the 19th and early 20th centuries, the coastal region prospers, while the interior of China -- which begins about 160 kilometers (100 miles) from the coast and runs about 1,600 kilometers to the west -- languishes. Roughly 80 percent of all Chinese citizens currently have household incomes lower than the average household income in Bolivia. Most of China's poor are located west of the richer coastal region. This disparity of wealth time and again has exposed tensions between the interests of the coast and those of the interior. After a failed rising in Shanghai in 1927, Mao Zedong exploited these tensions by undertaking the Long March into the interior, raising a peasant army and ultimately conquering the coastal region. He shut China off from the international trading system, leaving China more united and equal, but extremely poor.

The current government has sought a more wealth-friendly means of achieving stability: buying popular loyalty with mass employment. Plans for industrial expansion are implemented with little thought to markets or margins; instead, maximum employment is the driving goal. Private savings are harnessed to finance the industrial effort, leaving little domestic capital to purchase the output. China must export accordingly.

China's second strategic concern derives from the first. China's industrial base by design produces more than its domestic economy can consume, so China must export goods to the rest of the world while importing raw materials. The Chinese therefore must do everything possible to ensure international demand for their exports. This includes a range of activities, from investing money in the economies of consumer countries to establishing unfettered access to global sea-lanes.

The third strategic interest is in maintaining control over buffer states. The population of the historical Han Chinese heartland is clustered in the eastern third of the country, where ample precipitation distinguishes it from the much more dry and arid central and western thirds. China's physical security therefore depends on controlling the four non-Han Chinese buffer states that surround it: Manchuria, Inner Mongolia, Xinjiang and Tibet. Securing these regions means China can insulate itself from Russia to the north, any attack from the western steppes, and any attack from India or Southeast Asia.

Controlling the buffer states provides China geographical barriers -- jungles, mountains, steppes and the Siberian wasteland -- that are difficult to surmount and creates a defense in depth that puts any attacker at a grave disadvantage.

Challenged Interests
Today, China faces challenges to all three of these interests.

The economic downturn in Europe and the United States, China's two main customers, has exposed Chinese exports to increased competition and decreased appetite. Meanwhile, China has been unable to appropriately increase domestic demand and guarantee access to global sea-lanes independent of what the U.S. Navy is willing to allow.

Those same economic stresses also challenge China domestically. The wealthier coast depends on trade that is now faltering, and the impoverished interior requires subsidies that are difficult to provide when economic growth is slowing substantially.

In addition, two of China's buffer regions are in flux. Elements within Tibet and Xinjiang adamantly resist Han Chinese occupation. China understands that the loss of these regions could pose severe threats to China's security, particularly if such losses would draw India north of the Himalayas or create a radical Islamic regime in Xinjiang.

The situation in Tibet is potentially the most troubling. Outright war between India and China -- anything beyond minor skirmishes -- is impossible so long as both are separated by the Himalayas. Neither side could logistically sustain large-scale multi-divisional warfare in that terrain. But China and India could threaten one another if they were to cross the Himalayas and establish a military presence on the either side of the mountain chain. For India, the threat would emerge if Chinese forces entered Pakistan in large numbers. For China, the threat would occur if large numbers of Indian troops entered Tibet.

China therefore constantly postures as if it were going to send large numbers of forces into Pakistan, but in the end, the Pakistanis have no interest in de facto Chinese occupation -- even if the occupation were directed against India. Likewise, the Chinese are not interested in undertaking security operations in Pakistan. The Indians have little interest in sending forces into Tibet in the event of a Tibetan revolution. For India, an independent Tibet without Chinese forces would be interesting, but a Tibet where the Indians would have to commit significant forces would not be. As much as the Tibetans represent a problem for China, the problem is manageable. Tibetan insurgents might receive some minimal encouragement and support from India, but not to a degree that would threaten Chinese control.

So long as the internal problems in Han China are manageable, so is Chinese domination of the buffer states, albeit with some effort and some damage to China's reputation abroad.

The key for China is maintaining interior stability. If this portion of Han China destabilizes, control of the buffers becomes impossible. Maintaining interior stability requires the transfer of resources, which in turn requires the continued robust growth of the Chinese coastal economy to generate the capital to transfer inland. Should exports stop flowing out and raw materials in, incomes in the interior would quickly fall to politically explosive levels. (China today is far from revolution, but social tensions are increasing, and China must use its security apparatus and the People's Liberation Army to control these tensions.)

Maintaining those flows is a considerable challenge. The very model of employment and market share over profitability misallocates scores of resources and breaks the normally self-regulating link between supply and demand. One of the more disruptive results is inflation, which alternatively raises the costs of subsidizing the interior while eroding China's competitiveness with other low-cost global exporters.

For the Chinese, this represents a strategic challenge, a challenge that can only be countered by increasing the profitability on Chinese economic activity. This is nearly impossible for low value-added producers. The solution is to begin manufacturing higher value-added products (fewer shoes, more cars), but this necessitates a different sort of work force, one with years more education and training than the average Chinese coastal inhabitant, much less someone from the interior. It also requires direct competition with the well-established economies of Japan, Germany and the United States. This is the strategic battleground that China must attack if it is to maintain its stability.

A Military Component
Besides the issues with its economic model, China also faces a primarily military problem. China depends on the high seas to survive. The configuration of the South China Sea and the East China Sea render China relatively easy to blockade. The East China Sea is enclosed on a line from Korea to Japan to Taiwan, with a string of islands between Japan and Taiwan. The South China Sea is even more enclosed on a line from Taiwan to the Philippines, and from Indonesia to Singapore. Beijing's single greatest strategic concern is that the United States would impose a blockade on China, not by positioning its 7th Fleet inside the two island barriers but outside them. From there, the United States could compel China to send its naval forces far away from the mainland to force an opening -- and encounter U.S. warships -- and still be able to close off China's exits.

That China does not have a navy capable of challenging the United States compounds the problem. China is still in the process of completing its first aircraft carrier; indeed, its navy is insufficient in size and quality to challenge the United States. But naval hardware is not China's greatest challenge. The United States commissioned its first aircraft carrier in 1922 and has been refining both carrier aviation and battle group tactics ever since. Developing admirals and staffs capable of commanding carrier battle groups takes generations. Since the Chinese have never had a carrier battle group in the first place, they have never had an admiral commanding a carrier battle group.

China understands this problem and has chosen a different strategy to deter a U.S. naval blockade: anti-ship missiles capable of engaging and perhaps penetrating U.S. carrier defensive systems, along with a substantial submarine presence. The United States has no desire to engage the Chinese at all, but were this to change, the Chinese response would be fraught with difficulty.

While China has a robust land-based missile system, a land-based missile system is inherently vulnerable to strikes by cruise missiles, aircraft, unmanned aerial vehicles currently in development and other types of attack. China's ability to fight a sustained battle is limited. Moreover, a missile strategy works only with an effective reconnaissance capability. You cannot destroy a ship if you do not know where it is. This in turn necessitates space-based systems able to identify U.S. ships and a tightly integrated fire-control system. That raises the question of whether the United States has an anti-satellite capability. We would assume that it does, and if the United States used it, it would leave China blind.

China is therefore supplementing this strategy by acquiring port access in countries in the Indian Ocean and outside the South China Sea box. Beijing has plans to build ports in Myanmar, which is flirting with ending its international isolation, and Pakistan. Beijing already has financed and developed port access to Gwadar in Pakistan, Colombo and Hambantota in Sri Lanka, Chittagong in Bangladesh, and it has hopes for a deepwater port at Sittwe, Myanmar. In order for this strategy to work, China needs transportation infrastructure linking China to the ports. This means extensive rail and road systems. The difficulty of building this in Myanmar, for example, should not be underestimated.

But more important, China needs to maintain political relationships that will allow it to access the ports. Pakistan and Myanmar, for example, have a degree of instability, and China cannot assume that cooperative governments will always be in place in such countries. In Myanmar's case, recent political openings could result in Naypyidaw's falling out of China's sphere of influence. Building a port and roads and finding that a coup or an election has created an anti-Chinese government is a possibility. Given that this is one of China's fundamental strategic interests, Beijing cannot simply assume that building a port will give it unrestricted access to the port. Add to this that roads and rail lines are easily sabotaged by guerrilla forces or destroyed by air or missile attacks.

In order for the ports on the Indian Ocean to prove useful, Beijing must be confident in its ability to control the political situation in the host country for a long time. That sort of extended control can only be guaranteed by having overwhelming power available to force access to the ports and the transportation system. It is important to bear in mind that since the Communists took power, China has undertaken offensive military operations infrequently -- and to undesirable results. Its invasion of Tibet was successful, but it was met with minimal effective resistance. Its intervention in Korea did achieve a stalemate but at horrendous cost to the Chinese, who endured the losses but became very cautious in the future. In 1979, China attacked Vietnam but suffered a significant defeat. China has managed to project an image of itself as a competent military force, but in reality it has had little experience in force projection, and that experience has not been pleasant.

Internal Security vs. Power Projection
The reason for this inexperience stems from internal security. The People's Liberation Army (PLA) is primarily configured as a domestic security force -- a necessity because of China's history of internal tensions. It is not a question of whether China is currently experiencing such tensions; it is a question of possibility. Prudent strategic planning requires building forces to deal with worst-case situations. Having been designed for internal security, the PLA is doctrinally and logistically disinclined toward offensive operations. Using a force trained for security as a force for offensive operations leads either to defeat or very painful stalemates. And given the size of China's potential internal issues and the challenge of occupying a country like Myanmar, let alone Pakistan, building a secondary force of sufficient capability might not outstrip China's available manpower but would certainly outstrip its command and logistical capabilities. The PLA was built to control China, not to project power outward, and strategies built around the potential need for power projection are risky at best.

It should be noted that since the 1980s the Chinese have been attempting to transfer internal security responsibilities to the People's Armed Police, the border forces and other internal security forces that have been expanded and trained to deal with social instability. But despite this restructuring, there remain enormous limitations on China's ability to project military power on a scale sufficient to challenge the United States directly.

There is a disjuncture between the perception of China as a regional power and the reality. China can control its interior, but its ability to control its neighbors through military force is limited. Indeed, the fear of a Chinese invasion of Taiwan is unfounded. It cannot mount an amphibious assault at that distance, let alone sustain extended combat logistically. One option China does have is surrogate guerrilla warfare in places like the Philippines or Indonesia. The problem with such warfare is that China needs to open sea-lanes, and guerrillas -- even guerrillas armed with anti-ship missiles or mines -- can at best close them.

Political Solution
China therefore faces a significant strategic problem. China must base its national security strategy on what the United States is capable of doing, not on what Beijing seems to want at the moment. China cannot counter the United States at sea, and its strategy of building ports in the Indian Ocean suffers from the fact that its costs are huge and the political conditions for access uncertain. The demands of creating a force capable of guaranteeing access runs counter to the security requirements inside China itself.

As long as the United States is the world's dominant naval power, China's strategy must be the political neutralization of the United States. But Beijing must make certain that Washington does not feel so pressured that it chooses blockade as an option. Therefore, China must present itself as an essential part of U.S. economic life. But the United States does not necessarily see China's economic activity as beneficial, and it is unclear whether China can maintain its unique position with the United States indefinitely. Other, cheaper alternatives are available. China's official rhetoric and hard-line stances, designed to generate nationalist support inside the country, might be useful politically, but they strain relations with the United States. They do not strain relations to the point of risking military conflict, but given China's weakness, any strain is dangerous. The Chinese feel they know how to walk the line between rhetoric and real danger with the United States. It is still a delicate balance.

There is a perception that China is a rising regional and even global power. It may be rising, but it is still far from solving its fundamental strategic problems and further yet from challenging the United States. The tensions within China's strategy are certainly debilitating, if not fatal. All of its options have serious weaknesses. China's real strategy must be to avoid having to make risky strategic choices. China has been fortunate for the past 30 years being able to avoid such decisions, but Beijing utterly lacks the tools required to reshape that environment. Considering how much of China's world is in play right now -- Sudanese energy disputes and Myanmar's political experimentation leap to mind -- this is essentially a policy of blind hope.

[E.R. Campbell]

While the three factor at the beginning are fine, if a little sketchy, I think that STRATFOR author is grasping at straws with the Pakistan/Tibet scenarios: as (s)he correctly points out neither China nor India is interested.

As to Xinjiang ~ a couple of years ago a mid level Chinese official put it to me that they, the (mostly) Han Chinese, plan to "f__k Xinjiang into submission." He meant that young men are encouraged to go to Xinjiang and marry a mostly relatively poor, attractive Uyghur girl and raise a totally secular, modern Chinese family. It may be the work of a few generations but my acquaintance was confident of the strategy. 

[sean m]

@ Mr. Campbell,

Yes, as you say the author does point out that fact in regards to Tibet. Yet do you or anyone else think that this weakness in Tibet or Xinjiang could turn into an opportunity for someone to attack China if they desired to? "For India, an independent Tibet without Chinese forces would be interesting", can anyone speculate how an independent Tibet would be interesting for India? In regards to Xinjiang, do you or anyone feel that what you contact is saying is accurate that the Uyghur people are really going to allow this to happen to their people? Maybe since  the Uyghurs are ethnically Turkic, and  they seem to mostly be of the islamic faith. Maybe a community whose is ethnically and religiously different from the Han or any other ethnic group in China, would be less inklind (maybe) to marry into a people they view as opressors. This quote "China's second strategic concern derives from the first. China's industrial base by design produces more than its domestic economy can consume, so China must export goods to the rest of the world while importing raw materials. The Chinese therefore must do everything possible to ensure international demand for their exports. This includes a range of activities, from investing money in the economies of consumer countries to establishing unfettered access to global sea-lanes", is interesting since someone could possible develop the notion that, China is as desperate for trade with us as we are for them. It seems like there are individuals in the business world who seems to state that we are in more need for trade with China than visa versa, just an opinion. Maybe the divide between inner and the coastal region of China could get worse if both sides receive what they want or need, perhaps? "The key for China is maintaining interior stability. If this portion of Han China destabilizes, control of the buffers becomes impossible. Maintaining interior stability requires the transfer of resources, which in turn requires the continued robust growth of the Chinese coastal economy to generate the capital to transfer inland. Should exports stop flowing out and raw materials in, incomes in the interior would quickly fall to politically explosive levels. (China today is far from revolution, but social tensions are increasing, and China must use its security apparatus and the People's Liberation Army to control these tensions.)" from what the author is saying it seems that China has a lot of tensions which could spiral out of control and become started in a short period of time, do you or anyone concur with this statement? "For the Chinese, this represents a strategic challenge, a challenge that can only be countered by increasing the profitability on Chinese economic activity. This is nearly impossible for low value-added producers. The solution is to begin manufacturing higher value-added products (fewer shoes, more cars), but this necessitates a different sort of work force, one with years more education and training than the average Chinese coastal inhabitant, much less someone from the interior." This statement seems to infer that China needs to educate it's population a lot more in order to be more productive in the production of more quality goods and services, does anyone believe that since China relies more on foreign investment and purchasing of quality goods- services and businesses, that it could put them in a more precarious situation due to their domestic issues in this regard? Maybe this could be an advantage for us since they require quality goods and services from us and it seems that we what is keeping the coastal and mainland regions of China from spiralling out of control. In regards to the military portion of the article do you or anyone agree with the author?

[GAP]

Sean m you may have had a point in that last post, but I defy anyone to try and follow it......it's just a block of words, little punctuation, sentence and paragraph structure.....couldn't be bothered trying...........

[E.R. Campbell]

Let me see if I can find or make any sense of your post:

@ Mr. Campbell,

Yes, as you say the author does point out that fact in regards to Tibet. Yet do you or anyone else think that this weakness in Tibet or Xinjiang could turn into an opportunity for someone to attack China if they desired to?

Have you looked at the geograrphy of China and its neighbours? The LoCs are pretty tough.

"For India, an independent Tibet without Chinese forces would be interesting", can anyone speculate how an independent Tibet would be interesting for India?

It would pose a potential problem re: the large Tibetan Buddhist minority in India and it might destabilize China, itself, thus creating unnecessary risk for India.

In regards to Xinjiang, do you or anyone feel that what you contact is saying is accurate that the Uyghur people are really going to allow this to happen to their people? Maybe since  the Uyghurs are ethnically Turkic, and  they seem to mostly be of the islamic faith. Maybe a community whose is ethnically and religiously different from the Han or any other ethnic group in China, would be less inklind (maybe) to marry into a people they view as opressors.

Maybe, indeed, my contact was, I suspect, counting on greed, especially amongst poor Uyghur women, to help the project along. Anecdotal evidence seems to suggest (notice how indefinite I am being) that many Uyghur women are quite willing to marry Chinese men and to renounce their faith to get a better life.
 
This quote "China's second strategic concern derives from the first. China's industrial base by design produces more than its domestic economy can consume, so China must export goods to the rest of the world while importing raw materials. The Chinese therefore must do everything possible to ensure international demand for their exports. This includes a range of activities, from investing money in the economies of consumer countries to establishing unfettered access to global sea-lanes", is interesting since someone could possible develop the notion that, China is as desperate for trade with us as we are for them. It seems like there are individuals in the business world who seems to state that we are in more need for trade with China than visa versa, just an opinion.

There is no question, it is a symbiotic relationship ~ as are all successful trading relationships. What is interesting, in the strategic calculus is that America is burdened with, inter alai, providing "freedom of the seas" for China because America has other, pressing strategic interests that require it to provide that 'service' for all.

Maybe the divide between inner and the coastal region of China could get worse if both sides receive what they want or need, perhaps? "The key for China is maintaining interior stability. If this portion of Han China destabilizes, control of the buffers becomes impossible. Maintaining interior stability requires the transfer of resources, which in turn requires the continued robust growth of the Chinese coastal economy to generate the capital to transfer inland. Should exports stop flowing out and raw materials in, incomes in the interior would quickly fall to politically explosive levels. (China today is far from revolution, but social tensions are increasing, and China must use its security apparatus and the People's Liberation Army to control these tensions.)" from what the author is saying it seems that China has a lot of tensions which could spiral out of control and become started in a short period of time, do you or anyone concur with this statement?

Yes, China, like France, for example, has a lot of internal tensions which can, quickly, flare up into civil unrest. The spread of TV, it is ubiquitous in China, allows everyone to see what live is supposed to be like in the prosperous East coast provinces - everyone wants the same, rather like poor black kids in American ghettoes want what they see on TV. The social problems in China should not be minimized, nor should the capacity of the Chinese system to respond to the popular will. The problem all oligarchies have is keeping a "finger on the pulse" of public opinion.
 
"For the Chinese, this represents a strategic challenge, a challenge that can only be countered by increasing the profitability on Chinese economic activity. This is nearly impossible for low value-added producers. The solution is to begin manufacturing higher value-added products (fewer shoes, more cars), but this necessitates a different sort of work force, one with years more education and training than the average Chinese coastal inhabitant, much less someone from the interior." This statement seems to infer that China needs to educate it's population a lot more in order to be more productive in the production of more quality goods and services, does anyone believe that since China relies more on foreign investment and purchasing of quality goods- services and businesses, that it could put them in a more precarious situation due to their domestic issues in this regard? Maybe this could be an advantage for us since they require quality goods and services from us and it seems that we what is keeping the coastal and mainland regions of China from spiralling out of control. In regards to the military portion of the article do you or anyone agree with the author?

There is a always a market for new, innovative goods and services in China ~ just as there is in America, Brazil, Canada, etc, etc ... The Chinese education system is still evolving, as is our (I hope); the Chinese appear happy with their relative mastery of technical learning but they want to introduce greater creativity without sacrificing what they already do well. Their perception is that America squandered its global lead on technical skills and knowledge in pursuit of "self actualization" and so on.

See how easy paragraphs are, Sean? Just a simple "RETURN" at the end of each idea makes your post comprehensible - something it was not in its original form.

[E.R. Campbell]

This article, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is a reminder of how obscure Chinese politics can be:

http://www.theglobeandmail.com/news/politics/brewing-scandal-in-china-could-be-a-reality-check-for-harper/article2334141/

Brewing scandal in China could be a reality check for Harper

MARK MACKINNON

Guangzhou, China— Globe and Mail Update
Published Friday, Feb. 10, 2012

It’s the biggest political scandal to hit China in years, and Prime Minister Stephen Harper is about to land in the middle of it.

Bo Xilai, the charismatic and controversial Communist Party boss of Chongqing – the last stop Mr. Harper’s five-day, three-city visit to China – was until this week seen as a rising political star, all but certain to be promoted to the all-powerful Standing Committee of the Politburo during a once-in-a-decade transfer of power that begins this fall ... more in the original

The Chinese Communits party is not monolithic; there is a "hard left" wing, represented by Bo Xilai's red culture movement, there is a "hard right" wing represented by former leaders Jiang Zemin's Shanghai gang and a centre left movement represented by Hu Jintoa's current administration. Neither Jiang nor Hu was ever able to build a strong enough coalition in the Standing Committee to select their own successors.

The party aims for a sort of meritocracy but we have no way of measuring its success because the processes by which the members of the all powerful political centre are chosen remains very private.

Bo Xilai is for the high jump according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/world/china-removes-top-leadership-contender-from-chongqing-post/article2369764/

China removes top leadership contender from Chongqing post

MARK MACKINNON

BEIJING— Globe and Mail Update
Published Wednesday, Mar. 14, 2012


China’s usually staid political scene was rocked by an earthquake Thursday as a leading contender for a post in the next Politburo was sacked from his job amid an ongoing police investigation.

For the past five years, Bo Xilai has used his post as Communist Party boss of the southwestern city Chongqing to promote his vision of a throwback China that focused on social justice and promoted Maoist ideals. In the process he became one of the most visible and popular politicians in a country ruled by grey technocrats. It was considered almost certain that he would be elevated to the country’s all-powerful Standing Committee of the Politburo during a leadership shuffle this fall.

Mr. Bo’s future rise was seen as so certain that Prime Minister Stephen Harper made a special point of meeting him on his recent trip to China.

But a terse announcement Thursday on the official Xinhua newswire likely put an end to such ambitions. The bulletin simply declared “Comrade Bo Xilai no longer serves as Party Secretary for Chongqing” and announced that Vice-Premier Zhang Dejiang had replaced him.

Mr. Bo’s sudden and spectacular downfall started last month when Wang Lijun, who had served as Mr. Bo’s right-hand man and police chief in Chongqing, took refuge inside the United States consulate in the nearby city of Chengdu. Mr. Wang emerged after spending a night in the consulate on the condition that he would surrender only to the central leadership in Beijing, not the local police.

The scandal surrounding Mr. Wang broke just days before Mr. Harper arrived in Chongqing, though Mr. Bo went through with the meeting as though everything was normal.

Mr. Wang has since disappeared – official reports say he is receiving “vacation-style treatment” – and rumours have swirled ever since about what information he gave to American diplomats, and what he had to say to the Communist Party chiefs in Beijing.

It’s not yet clear if the scandal will have a wider impact on the Communist Party’s sensitive power transfer. Seven of the nine current members of the Standing Committee of the Politburo are expected stand aside this fall for a new generation headed by current Vice-President Xi Jinping. Mr. Bo was often portrayed as the face of the conservative wing of the Communist Party, jockeying for power and influence on the next Politburo against a liberal wing headed by Guangdong secretary Wang Yang.

Making the announcement more shocking inside China is Mr. Bo’s heritage. As the son of Bo Yibo, who is considered a hero of the 1949 revolution and one of the “eight immortals” of the Communist Party, the 62-year-old Mr. Bo was thus seen as a “princeling,” a second-generation Communist leader (like Mr. Xi) whose family name put him on a fast track to power.

Mr. Bo’s eye-catching policies in Chongqing raised his profile further. He initially made waves through an anti-mafia crackdown that broke the city’s powerful triads, while simultaneously drawing criticisms for the lack of due process while obtaining convictions.

He later emerged as the vanguard of a resurgent Maoist movement in China, instructing Chongqing citizens to learn Mao-era songs and bombarding them with text messages of his favourite quotes from the Chairman. The campaigns made him the hero of the country’s leftists, who feel China has strayed too far from socialist ideology, but also raised concerns that Chongqing was flirting with the passions that sparked the bloody Cultural Revolution of the 1960s and 1970s.

Gossip about Mr. Bo’s fate dominated the recent meeting of China’s rubberstamp parliament, the National People’s Congress, which finished its annual session on Wednesday. Mr. Bo seemed confident when addressing the media, but was also noticeably absent at key moments.

“I feel like I put my trust in the wrong person,” Mr. Bo said when asked about Mr. Wang’s disappearance.

Premier Wen Jiabao seemed to target Mr. Bo for unusual criticism during his annual press conference on Wednesday, telling reporters that the police investigation into what had taken place in Chongqing “will respect the truth and the law, and the public will be informed of the result.”

In what was interpreted as a jab at Mr. Bo’s policies in Chongqing, he then referenced the danger of another Cultural Revolution while speaking of the need for political reforms both in China in general and inside the Communist Party in particular.

“We have entered a critical point in the need for reforms. Without successful political reform, vital economic reforms cannot be carried out. The results of what we have achieved may be lost. A historical tragedy like the Cultural Revolution could be repeated. Each party member and cadre should feel a sense of urgency,” Mr. Wen said.

The CCP does have mechanisms for finding and dealing with corruption and deviation from the approved (Deng Xiaoping) party line ~ there are, probably, elements of anti-corruption in this decisions, but my sense is that it is mostly a party line issue: Hu Jintao has taken the party as far "left" (towards a "welfare state") as it is inclined to go.

Corruption remains a problem; in many respects modern China reminds me of late medieval England: no matter what the expressed wishes of the centre the provinces have a lot of autonomy - through the modern day equivalent of castellans and sheriffs - and ways must be found to pay off supporters while still sending the monarch, The General Secretary of the Central Committee in Beijing, his due. It is a system that breeds and needs corruption and it is a system the Chinese must, finally, after 2,500 years, put aside. The CCP understands this, I believe, but they have yet to find a way ... Western style democracy, even of the conservative Singapore style, is thought to be too inefficient and potentially chaotic.

[tomahawk6]

Bo Xilai’s Sacking Signals Showdown In China’s Communist Party

Premier Wen Jiabao’s shocking press conference and the ouster of party chief Bo Xilai signals a big showdown by pols who want a more liberal China.

by Rosemary Righter | March 15, 2012 12:00 PM EDT

Today’s unceremonious dismissal of Bo Xilai, the powerful and charismatic Party Secretary of China’s giant southwestern megalopolis of Chongqing, is a political earthquake that will send shockwaves across China.

Bo was bigger even than his big job: the most powerful and persuasive advocate in China for leftists and neo-Maoists who believe, as Bo pointedly observed in a Beijing press conference just last week, that if “only a few people are rich” at the end of a decade of breakneck economic growth, “then we are capitalists, we’ve failed.”

Bo touted his “Chongqing model” as a happy marriage of communist morality, social equality and economic efficiency, breaking growth records through booming state-owned corporations while spreading some of that wealth to workers in progressive socialist housing, education and health programs. He reveled in Maoist-style slogans. His “Sing Red and Strike Black” campaign, an odd juxtaposition of Maoist revivalism with ruthless crime-busting, struck a chord with many Chinese angered both by corruption and by the enormous gulf between rich and poor that many blame on economic liberalisation.

Bo also carried the clout that comes from being one of the “princelings”—sons of the big heroes of the 1949 revolution, considered until very recently to be untouchable. He was strongly placed for the ultimate political elevation this October, expected to secure one of the nine seats on the all-powerful Politburo Standing Committee—a committee his detractors (who call him a “little Mao”) feared Bo would come to dominate. And indeed, there is a whiff of the 1976 fall of the Gang of Four in Bo’s abrupt defenestration.



China's Chongqing Municipality Communist Party Secretary Bo Xilai attends the closing session of the National Peoples Congress (NPC) at The Great Hall Of The People on March 14, 2012 in Beijing, China. , Lintao Zhang / Getty Images

It is a measure of the difficulty Bo Xilai’s ideological challenge posed to the Beijing leadership that it clearly felt compelled, the day before the axe fell, to make the case against him to the nation, under the authority of no less a figure than Chinese Prime Minister Wen Jiabao. In a broadcast press conference, Wen deliberately studded his speech with clues that Bo’s political fate was sealed.

Party press conferences in China are not supposed to be exciting events—certainly not mere months before the leadership hands over power to the next generation, and all cadres must stage impressive displays of party unity. So Wen Jiabao’s three-hour encounter with foreign and national journalists at the end of the National People’s Congress on Wednesday would, at any time, have been nothing short of extraordinary. Here was China’s Prime Minister conjuring up the horrors of Chairman Mao’s Cultural Revolution, declaring the Arabs’ desire for democracy to be an undeniable force, challenging the Chinese to see the urgency of political reform and delivering a barely veiled attack on the “Red Princeling” Bo Xilai. Wen’s speech made it was plain to every person watching that, as far as he and his fellow modernizers were concerned, there is no going back; China is on the road to a future very different from its Maoist past.

Wen Jiabao described the Cultural Revolution as a “tragedy”—and one that, without urgent political reforms, “may happen again”

Wen’s rebuke was as dramatic as Chinese politics gets--and he is correct that China’s future hinges on the outcome of the battle within the Party itself. Live on national television (and therefore ruling out any subsequent gloss or watering down for public consumption), Wen chose—evidently, as it emerged the following day, in joint decision within the top leadership—to use his prime-time, once-a-year press conference to take direct aim at Bo Xilai, and signal his opposition to Bo’s promotion to the Politburo standing committee.

With a bluntness almost unheard of in China’s stiff official discourse, Wen used this most public of platforms to describe the Cultural Revolution as a “tragedy”—and one that, without urgent political reforms, “may happen again”. In contrast, Bo has made the idea of a “Red Culture” revival central to his philosophy.

Wen was vague about what political reform would look like in China—with only a year left of his decade in office, specifics were not the point. Wen’s purpose was to use all the considerable influence remaining to him to support the cause of liberal reform against the leftist wing of the party championed by Bo.

That, and to tell the nation: “Watch out: this man is dangerous.” Wen responded strongly in the broadcast to questions about the dramatic tale that has riveted China since the news broke last month—the flight to a US consulate and subsequent detention in Beijing of Wang Lijun, the flamboyant Chongqing police chief and famous crimebuster who was for years Bo’s strong right arm. Discussion of that drama has crackled in almost uncensored form across the Chinese blogosphere. Wen sternly intoned that the Chongqing Party Committee (headed by Bo) must reflect seriously on the “incident” and that the government was investigating the case with utmost gravity. He added: “an answer must be given to the people and the result of the investigation should be able to stand the test of law and history.”

What Wen did not add is that Beijing has in fact been investigating Chongqing for nearly a year now, long before Wang was suddenly purged by his boss and fled Chongqing in fear for his life. Beijing has accumulated evidence that Bo and Wang’s “strike black” campaign, officially against organised crime, has also served as cover for nabbing thousands of extremely rich businessman. Purportedly held in secret prisons and interrogated under torture, many were given long prison terms or executed. Many had their assets confiscated—a neat way, critics say, to finance Bo’s vaunted housing for the poor and leave enough over to pay for his son’s red Ferrari and to buy allegiance.

The “smash black” campaign also served as a way to smear the stigma of corruption on Wang Yang, the liberal Guangzhou party boss who is also in line for a Politburo standing committee slot, by allowing people to come to the conclusion that Wang must have allowed these businessmen to flourish when he held Bo’s Chonqing job. In his press conference,Wen pointedly praised Wang Yang’s tenure.

Professor Tong Zhiwei, who conducted Beijing’s investigation, is by far the leading Chinese authority on law, administration and constitution, posted at the prestigious Jiaotong University in Shanghai. His report, submitted to the leadership last autumn and also discussed by him on television, is damning. The primary goal of “strike black”, he concluded, was to “weaken and eliminate” private enterprise, “thereby strengthening state-owned enterprises or local government finances”. Its main impact, he wrote, was not on the Chongqing mafia, the ostensible target, but on the wealthy elite stripped of their money, their power and even their families--many of whom were also hauled off to detention. One of these millionaires, the businessman Li Jun who is now a penniless exile, has described in detail the torture he says he suffered under the “new red terror”, presided over by Bo and the police chief whom Bo so hurriedly demoted last month. Another mogul, Zhang Mingyu, who claims to possess incriminating tapes on the methods used against detainees, was seized by Chongqing police in Beijing last week.

If Bo had hoped to make Wang Lijung the fall guy as the net began to close around him, that move spectacularly backfired. Beijing may now decide to throw the book at Wang--and to publish the grisly facts about the alleged torture, extortion and other unlawful methods used in Chongqing, as premier Wen hinted in his promise to make public Beijing’s investigation of the Wang affair. Such revelations, if true, would destroy both Chongqing men. Bo may well be in line for worse punishment than merely losing his job. To break the grip of the left, Bo must be discredited. This struggle is more than a battle between two ambitious contenders for leadership roles. The sacking of Bo Xilai is a pre-emptive move to ensure that the liberal line prevails in China, not the statist model. By dramatically invoking the dark decade of the Cultural Revolution, Wen Jiabao has further put pressure on the hitherto reticent Xi Jinping, China’s heir presumptive, to line up, unequivocally and here and now, with the forces of modernisation.

http://www.thedailybeast.com/articles/2012/03/15/bo-xilai-s-sacking-signals-showdown-in-china-s-communist-party.html

[Thucydides]

We have seen the changes in the PLA and PLAN; now the Air Force's modernization plans come into focus:

http://www.aviationweek.com/aw/generic/story_generic.jsp?channel=awst&id=news/awst/2012/03/19/AW_03_19_2012_p61-431709.xml&headline=China%27s%20Air%20Force%20Modernizes%20On%20Dual%20Tracks

China's Air Force Modernizes On Dual Tracks

By Richard D. Fisher, Jr.
Washington

As China starts to put together a modern, integrated air force, which could reach 1,000 fighters by 2020, it is developing the components of a future force of stealthier combat aircraft, new bombers and unmanned, hypersonic and possibly space-based combat platforms. These could emerge as soon as the early 2020s.

This dual track was illustrated in late 2010 by two events. One was the People’s Liberation Army Air Force’s (Plaaf) first foreign demonstration of its modern capabilities: a combined-force mission of Xian Aircraft Co. H-6 bombers supported by Chengdu Aircraft Co. J-10 multi-role fighters, KJ-2000 airborne early warning and control aircraft. and H-6U tankers for an exercise in Kazakhstan. The other was the unveiling four months later of the Chengdu stealth fighter prototype, widely known as the J-20, followed in early 2011 by its first official flight.

The modernization drive relies on a comprehensive aerospace technology development program that started in the early 1990s. The first underlying doctrine was guided by “access denial” strategies that gelled in the late 1990s and focused on conflict over Taiwan. They were followed after 2005 by “New Historic Mission” strategies, propelling the PLA to dominate at greater distances and to build new, farther-reaching expeditionary capabilities.

To speed development of new weapons, the PLA has encouraged defense- sector competition since major logistics reforms in 1998, at the price of subsidizing greater redundancy. Though less prevalent in aerospace than in other defense fields, there is significant redundancy in combat aircraft, unmanned aircraft, electronics and weapons development and production.

Chengdu and the Shenyang Aircraft Co., China’s main fighter concerns, manage both stealthy and conventional fighter programs. China purchased 176 Sukhoi Su-27SK/UBK/Su-30MKK/MK2 twin-engine fighters, and co-produced over 100 more as the J-11 under license from Russia. In 2008, Shenyang started delivering the unlicensed J-11B with indigenous engines, radar and weapons, and today it is China’s most capable domestic production fighter. More than 120 J-11B and twin-seat J-11BSs serve in the air force, and are expected to be upgraded with better engines and an active, electronically scanned array (AESA) radar as they become available. A dedicated attack version of the J-11BS dubbed the “J-16” may also include these upgrades. Though it lost to Chengdu for the heavy stealth-fighter program, there is a persistent buzz that Shenyang is self-funding a medium-weight stealth warplane, perhaps called “J-60.”

Shenyang’s J-15, a near-facsimile of the Sukhoi Su-33 carrier-based fighter, is leading a new era of growth for the PLA navy’s air force. Having undergone land-based testing over the last year with the short-takeoff but arrested-recovery (Stobar) system to be used by China’s first aircraft carrier, the refurbished Russian Varyag, the J-15 could begin carrier-based testing later this year and when fully developed could prove as potent as the Boeing F/A-18E/F. An initial carrier air wing will include Changhe Z-8 airborne early warning and control helicopters with airborne early warning radar, and perhaps Russian Kamov Ka-32 anti-submarine and Ka-31 AEW helicopters.

A twin-turboprop E-2 class airborne early warning/antisubmarine warfare (AEW/ASW) aircraft is under development, perhaps for conventional-takeoff-and-landing (CTOL) on two nuclear carriers that may follow two more non-nuclear Stobar carriers. In November 2011, images emerged of a long-awaited ASW version of the Shaanxi Y-8 “New High” medium transport, which will finally give the navy an oceanic ASW and maritime surveillance platform.

Since 2003, more than 200 of Chengdu’s “low end” canard-configuration single-engine J-10A and twin-seat J-10S fighters have entered service—forming the low end of a high-low mix with the larger J-11B. Production may soon switch to the upgraded J-10B equipped with an AESA radar, infrared search and track sensor, radar cross-section reduction measures and improved electronic warfare system. One J-10B prototype has been tested with a version of the Shenyang-Liming WS-10A turbofan. This fighter may be the basis for the “FC-20” version expected to be purchased by Pakistan.

Just before the service’s 60th anniversary in October 2009, a Chinese air force general stated that their next-generation fighter would enter service between 2017 and 2019, though a late- 2010 report of PLA interest in purchasing the Russian AL-41 turbofan for this fighter might accelerate that timeline. Since its emergence on the Internet in late 2010, Chengdu’s stealthy twin-engine canard J-20 has been photographed and videoed extensively undergoing testing at Chengdu. Expected to be fitted with 15-ton-class thrust-vectored turbofans in its production form, this aircraft is expected to be capable of supercruise and extreme post-stall maneuvering, and will be equipped with an AESA radar and distributed infrared warning sensors.

In 2005 a Chinese official said that an “F-35”-class program was being considered by Chengdu. China also has long been interested in short-takeoff-and-vertical-landing (Stovl) fighters, and long-standing Russian and Chinese reports point to a possible Chengdu program based on technology from the Yakovlev Yak-141, a supersonic Stovl prototype tested in the late 1980s.

A potential development of medium-weight stealth fighters by 2020 would cap an expected decade of more intensive export offerings. While the export effort is led by Chengdu’s FC-1/JF‑17 cooperative program with Pakistan (which could acquire up to 300 fighters) and the fighter could yet be purchased by the air force, greater international appeal may follow its being equipped with a Chinese engine—a likely near-term prospect.

But China is already laying the foundation for sales of the FC-1, and perhaps the J-10B and J-11B, by aggressively marketing low-cost trainers like the Hongdu K-8 and the supersonic L-15, with generous financing credits and production technology transfers. This “food chain” strategy has worked in Pakistan, and could be repeated in Egypt and as far away as Latin America. Venezuela and Bolivia are customers for light attack versions of the K-8 and Venezuelan officials reportedly visited the Chengdu factory in late 2011.

The Chinese air force and navy have taken delivery of about 170 of the twin-engine Xian JH-7/JH-7A strike fighters, with indications that Xian may be developing a reduced-signature variant. Approaching the longevity and mission evolution of the Boeing B-52, Xian’s latest version H-6K bomber entered low-rate production in 2010, equipped with more powerful and efficient Progress D-30KP turbofans and a redesigned nose with modern radar and optics. The bomber is armed with more than six land-attack cruise missiles. Little is known about Xian’s follow-on bomber program, except that it could emerge this decade. In late 2009 an “official” model of a large, stealthy delta-wing bomber was revealed, though its provenance is unknown. In early 2010 Chinese academics from the prestigious Institute of Mechanics, a leading hypersonics research center, produced a paper on an apparent large aircraft with a Mach 3 cruise speed, with illustrations and wind tunnel models indicating it could be an optionally manned platform.

This year or next, Xian is expected to unveil a new 50-60-ton payload Y-20 four-engine strategic transport. While the Comac C919 twin-turbofan regional airliner is an established, well-known program, Chinese officials are far more reticent about a Boeing 767-sized widebody four-turbofan airliner program at Xian. Though its business case may be unclear, this platform could serve multiple military missions.

To power its aerospace transformation, China has purchased about 1,000 Russian Saturn AL-31 turbofans for its Su-27/J-11 and J-10A fleets, which are receiving Chinese-developed service-life extensions. But after 25 years of intensive investments, new Chinese fighter and large high-bypass turbofan engines are emerging. In 2008 the Shenyang-Liming WS-10A was good enough to enter service with the J-11B, perhaps slightly below thrust goals at 12.7 tons, but it now powers the J-11BS and prototypes of the J-15 and J-10B. Shenyang-Liming may also be working toward a 15-ton variant of this engine. The Gas Turbine Research Institute has put a new 8-9.5-ton-thrust turbofan on one FC-1 and has advanced the development of a 15-ton engine for J-20. Shenyang-Liming, Xian and the Avic Commercial Aircraft Engine Co. have 13+-ton-thrust high-bypass turbofan engine programs to power military and commercial transports, and perhaps a new bomber.

Prototypes of the J-10B use China’s first fighter-sized AESA radar by the Nanjing Research Institute of Engineering Technology (NRIET) and future versions of the J-11 and J-15 fighters are expected to have AESA. NRIET’s mechanically scanned array radar on the J-10A and FC-1 can manage two simultaneous air-to-air missile (AAM) engagements at over 100 km (62 mi.). The Luoyang PL-12 actively guided AAM may have a range of 100 km, while the helmet-sighted PL-8 and PL-9 short-range AAMs may be replaced with a helmet-display sighted PL-10. Two companies produce families of satellite and laser-guided munitions, down to 50-kg (110-lb.) weapons for unmanned combat air vehicles.

China has developed a plethora of AEW platforms. The Plaaf itself uses the “high end” KJ-2000, based on the Beriev A-50, and the smaller KJ-2000 based on the Xian Y-8 turboprop transport, with a “balance beam” AESA antenna like that of the Saab Erieye. China has also exported the Y-8-based ZDK-03 with a “saucer” radar array to Pakistan. These will be joined soon by the Chengdu/Guizhou Soar Dragon box-wing strategic UAV.

Leadership for space warfare is being sought by the air force, and its leaders clearly enunciated new strategies calling for space warfare capabilities in late 2009. But today China’s manned and unmanned space program is controlled by the General Armaments Department of the Central Military Commission. The air force’s case, however, could be advanced by Chengdu’s small Shenlong spaceplane—which may have undertaken initial sub-orbital tests by late 2010—and could be developed into an X-37B-like craft. In 2006, engineers from the China Academy of Space Launch Technology outlined plans to build a 100-ton+ space shuttle-like spaceplane, perhaps by 2020, or a more efficient sub-orbital hypersonic vehicle that would launch attached payloads. “Flying” platforms could fall under air force control, while “dual use” missions of PLA-controlled satellites and manned space platforms could remain under GAD control.

But a clash could also occur over the future ballistic missile defense mission, which Asian military sources suggest could be realized by the mid-2020s. The successful warhead interception of January 2010 was likely a GAD program, but the air force’s expected development of very-long-range anti-aircraft missiles with anti-ballistic missile capabilities might also justify its potential claim on mission leadership.

[tomahawk6]

There are unconfirmed reports of a coup in China. Probably just a drill,but who knows for sure.

http://m.theepochtimes.com/n2/china-news/coup-in-beijing-says-chinese-internet-rumor-mill-207993.html

[E.R. Campbell]

Here is an interesting report about Hong Kong's problems with China:

http://www.theglobeandmail.com/report-on-business/video/video-bitter-political-rivalry-in-hong-kong/article2376264/
From Reuters via the Globe and Mail


Essentially, a lot of Hong Kong people think they are getting less than a fair shake from Beijing. Beijing is not unalterably opposed to some form of representative democracy but it wants to start slowly and from the village level, only getting to big cities and provinces after a generation or two; Hong Kong wants more representative democracy now. How Beijing manages Hong Kong's ambitions will be watched very carefully in Taipei.



Edit: format

[E.R. Campbell]

And more of China's economic dilemma, reproduced under the Fair Dealing provisions of the Copyright Act from the Financial Times, reprinted in the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/international-news/global-exchange/financial-times/how-to-blow-away-chinas-gathering-storm-clouds/article2376240/singlepage/#articlecontent

How to blow away China’s gathering storm clouds

MARTIN WOLF

Financial Times
Posted on Wednesday, March 21, 2012

China is entering upon a difficult transition to both lower growth and a different pattern of growth. This is the conclusion I drew from this year’s China Development Forum in Beijing. Moreover, it is likely to be a political as well as an economic transition. These two transitions will also interact with one another in complex ways. The past record of economic success, under Communist party rule, does not guarantee a comparably successful future.


Readers do not need to take my word. They can take those of the outgoing premier, Wen Jiabao, who said on March 14: “The reform in China has come to a critical stage. Without the success of political structural reform, it is impossible for us to fully institute economic structural reform. The gains we have made in reform and development may be lost, new problems that have cropped up in China’s society cannot be fundamentally resolved and such historical tragedy as the Cultural Revolution may happen again.”

These political questions are of great importance. But the economic transition, in itself, will be hard enough. China is coming to the end of what economists call “extensive growth” - driven by rising inputs of labour and capital. It must now move to “intensive growth” - driven by improving skills and technology. Among other consequences, China’s rate of growth will slow sharply from its average annual rate of close to 10 per cent of the past three decades. Making this transition harder is the nature of China’s extensive growth, particularly the extraordinary rate of investment and heavy reliance on investment as a source of demand.

China is ceasing to be a labour surplus country, in terms of the development model of the late West Indian Nobel laureate, Sir Arthur Lewis. Lewis argued that the subsistence income of surplus labour in agriculture set a low ceiling for wages in the modern sector. This made the latter extremely profitable. Provided the high profits were reinvested, as in China, the rate of growth of the modern sector and so of the economy would be very high. But, at some point, labour would become scarcer in agriculture, so raising the price of labour to the modern sector. Profits would be squeezed and savings and investment would fall as the economy matured.

The China of 35 years ago was a surplus labour economy. Today that is true no longer, partly because growth and urbanization have been so rapid: since the beginning of reform the Chinese economy has grown more than 20-fold, in real terms, and half of China’s population is now urban. In addition, China’s low birth rate means that the working age population (15-64) will reach a peak of 996 million in 2015. A paper by Cai Fang of the Chinese Academy of Social Sciences states that “labour shortage has become rampant throughout the country since it broke out in coastal areas in 2004. In 2011, manufacturing enterprises came across unprecedented and universal difficulties in recruiting labour”. Mr Fang’s paper gives compelling evidence of the consequent rise in real wages and shrinking profits.

China is now at the Lewis turning point. One consequence is that, at a given investment rate, the ratio of capital to labour will rise faster and returns also fall faster. Indeed, strong evidence of such rising capital intensity emerged even before the Lewis turning point. According to Louis Kuijs, a former World Bank economist, the contribution to higher labour productivity of the rising ratio of capital to labour (as opposed to the contribution of a higher “total factor productivity” (TFP), or overall productivity) rose from 45 per cent between 1978 and 1994 to 64 per cent between 1995 and 2009.

This has to change. China’s growth must be driven by rising TFP, which will sustain profits, rather than rising ratios of capital to labour, which will lead to declining profits, particularly now that real wages are rising fast. Some decline in profits is desirable, given the maldistribution of income. Taken too far, it would damage potential growth.

The difficulty of making the transition to growth driven by technical progress is one reason why so many countries have fallen into what has come to be called the “middle-income trap”. China, now a middle-income country, is determined to become a high-income country by 2030. That will take deep reforms, which are laid out in a remarkable recent joint report by the World Bank and the Development Research Center of the State Council. Those reforms will adversely affect vested interests, particularly in local government and state-owned enterprises. That is surely a big reason why Mr. Wen thinks political reforms matter.

The need to make difficult reforms, to sustain growth in the next two decades, is China’s longer-term challenge. In trying to get there, it confronts the short-term risks of a hard landing, as Nouriel Roubini of the Stern School of Business at New York University pointed out at the conference. China’s government is targeting annual growth of 7.5 per cent this year and of 7 per cent in the current five-year plan period. Some such slowdown seems inevitable. As growth slows, the need for extraordinary investment rates will also decline.

Yet getting from an investment rate of 50 per cent of gross domestic product to one of 35 per cent, without a deep recession on the way, requires an offsetting surge in consumption. China has no easy way to engineer such a surge, which is why its response to the crisis has been still higher investment. In addition, China has come to rely heavily on investment in property construction: over the past 13 years investment in housing has grown at an average annual rate of 26 per cent. Such growth will not continue.

China may indeed manage the transition to a very different kind of economic growth. The country still has vast potential to catch up. But the challenges of adjusting to the new pattern will be huge. Plenty of middle-income countries have failed. It is difficult to argue against China, given past successes. The best reason for confidence is that top policy makers lack such complacency.

I agree with Martin Wolf; despite the complexities of the problems facing China I, too, am confident that the leadership can manage the transitions to a more properly productive economy and to a more responsible political and bureaucratic system.

[E.R. Campbell]

There are unconfirmed reports of a coup in China. Probably just a drill,but who knows for sure.

http://m.theepochtimes.com/n2/china-news/coup-in-beijing-says-chinese-internet-rumor-mill-207993.html

A report, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, on why we don't get immediate, accurate reports about the Chinese leadership:

http://www.theglobeandmail.com/news/world/worldview/why-the-coup-rumours-in-china-arent-going-away/article2376711/

Why the coup rumours in China aren’t going away

MARK MACKINNON

Beijing— Globe and Mail Update
Posted on Wednesday, March 21, 2012

One of the truths of reporting on China is that few journalists, maybe none, can honestly claim to know what’s going on inside the upper echelons of power.

In other countries, you might see reporters offhandedly refer to their unnamed contacts inside the Prime Minister’s Office, or the White House, or whatever institution they’re covering. Even when I worked in famously enigmatic Russia, I had a few “Kremlin sources” I could occasionally turn to.

Not in China. I know many of the foreign journalists based here, and more than a few of the Chinese ones. None have ever claimed to me, or their readers, that they have a contact inside, or even close to, the decision-making Standing Committee of the Politburo of the Communist Party of China.

Which, often, is to the credit of those who run this country. This is not a place where trial balloons get floated by cabinet ministers trying to build public support and win funding for their pet project, nor are China’s leaders crippled by the constant and public infighting that brought down Canada’s Liberal Party or Britain’s Labour, to name two prominent examples.

But the wall of secrecy that Communist Party leadership has built around itself also prevents the development of trust between the government, media and public. It leaves the media with no one to talk to and get real information from when there’s a wild rumour floating about, like the continuing – and so far unfounded – talk that some kind of coup d’état was attempted Monday night in Beijing. And it leaves the public unsure of what to believe in such situations.

The coup rumour began with Chinese bloggers noting some unusual security around the Zhongnanhai leadership compound in the centre of Beijing on Monday night. The speculation grew more excited when some residents reported hearing gunshots in the area.

The whispers gained a wider audience a day later when websites like the Falun Gong-linked Epoch Times (“Coup in Beijing says Chinese Internet rumour mill”) and the Taiwan-based Want China Times (“Shots Fired in Beijing – but what kind?”) quoted unnamed “sources” suggesting a coup attempt had been launched against the government of President Hu Jintao and Premier Wen Jiabao.

The mutiny was supposedly led by a leftist faction inside the Politburo headed by Zhou Yongkang, the chief of China’s massive internal security apparatus, and the recently ousted leadership contender Bo Xilai.

In another country, reporters would have been on the phone to people in the offices of Mr. Hu, Mr. Wen, Mr. Zhou and Mr. Bo, in all likelihood getting a quick denial that there was anything like a coup happening.

(I should add here that if there is a serious conflict inside Zhongnanhai, it seems odd that security in the rest of Beijing remains normal, without even the extra police presence regularly seen during national holidays and major political events. Chinese official media have said there was a meeting between senior government leaders and a North Korean delegation at Zhongnanhai on Monday night, something that could explain the extra security, if not the reported gunshots.)

But no one has the rock-solid contacts who can irrefutably confirm or deny such a sensitive tale, especially not now, with the Chinese political scene in uncommon turmoil following the dramatic firing of Mr. Bo last week.

So the rumour has continued to snowball all week, to the point where some believe it had an effect on the foreign exchange markets. The esteemed Financial Times finally felt compelled to report on Thursday that “the Chinese capital is awash with speculation, innuendo and rumours of a coup.”

And now I’m passing on the scuttlebutt too. Why? Because no one in Zhongnanhai is taking my calls. They’re not taking anyone’s calls – which leaves the outside world in the dark at a crucial moment in Chinese history (by which I mean the once-in-a-decade leadership transition that begins this fall, not the rumoured coup effort).

Try it: Google “according to a source inside the Prime Minister’s Office” and you get 85,600 results.

Searching “according to a White House source” gets you 131,000. “According to an al-Qaeda source” brings 19,900.

But “according to a source in the Chinese Politburo”? None. When this story gets posted online, it will go right to the top of the charts as the first use of that phrase in all of Googledom.

Maybe that distinction will convince someone in Zhongnanhai to ring me up – an off-the-record conversation is fine – to let me know what all the fuss was about on Monday night.

Things are different in China - if there was a coup in almost any country we would expect to see the new "leaders" on the palace balcony, saluting the happy throngs with raised fists, etc ... in China those who have real power do not believe that the people, all 1.5 billion of them, have any particular right or even need to know who rules them and they certainly don't give a damn what the media, domestic or foreign might think.

[Thucydides]

The Chinese government is intervening in the housing market in a large way. This attempt to gradually deflate the housing bubble is well intentioned, but markets have a way of reacting in unanticipated ways (the popping of the US housing bubble and current attempts to keep the US housing market "inflated" should be fair warning to the dangers of market intervention):

http://www.businessweek.com/printer/articles/19680?type=bloomberg

China Home Prices Fall in 70 Cities Tracked
By Bloomberg News on March 17, 2012

China’s February home prices fell in more than half of the 70 cities monitored by the government with only three cities recording gains as the country maintained curbs on the property market.

Prices fell in 45 cities last month as compared with January, while 22 cities were unchanged, the National Statistics Bureau said in a statement on its website today. That compares with 47 cities recording a decline in January. New home prices in the cities of Shanghai, Beijing, Shenzhen and Guangzhou dropped for a fifth month.

Premier Wen Jiabao said last week China’s home prices remain far from a reasonable level and called on the government not to slacken efforts to regulate the housing sector. Relaxing the curbs could cause “chaos” in the market, Wen said. China’s two-year campaign to rein in home prices has included measures such as higher down payments and mortgage rates, and home purchase restrictions in 40 cities.

“With more supply coming in spring, prices will fall further,” said Lan Shen, a Shanghai-based economist at Standard Chartered Plc. “There will not be a total reversal of the government’s tightening policies this year and any sort of policy fine-tuning will have a limited impact of the market.”

Only the northern city of Baotou, the eastern city of Jinan and northwestern city of Xining posted gains of 0.1 percent in home prices. In January, no city posted gains for the first time since the government began releasing data at the start of 2011 for 70 cities instead of a national average.

Beijing, Shanghai Prices
Among major cities, February new home prices in Beijing fell 0.1 percent from January, while prices dropped by 0.2 percent in Shanghai. The southern business hubs of Guangzhou and Shenzhen both declined by 0.2 percent.

The eastern city of Wenzhou posted the biggest drop for the fourth month, with home prices declining by 0.5 percent from January and 8 percent from last year, according to the statistics bureau. A credit squeeze on smaller businesses in the city prompted Premier Wen to visit in October and pledge financial aid.

Today’s figures came after private data also showed the home market continued to cool. China’s February home prices posted the biggest decline in 19 months, according to SouFun Holdings Ltd. (SFUN), the nation’s biggest real estate website owner.

New home prices fell in 27 out of 70 cities in February from a year earlier, the government data showed today.

China Vanke Co. (000002), the country’s largest publicly traded developer, said contracted sales in the first two months fell 27 percent from a year earlier, while they slumped 31 percent at Poly Real Estate Co. (6000048), the second-biggest developer traded on Chinese exchanges.

Existing Homes
Existing home prices in Beijing and Shanghai both dropped 0.2 percent from January, according to the statistics bureau.

“The current administration will not relax the overall tightening stance on the housing market,” wrote Barclays Capital Asia Ltd. economists led by Jian Chang in a note to clients on March 14. “We expect a further decline in property prices, especially in major and coastal cities.”

The country’s home sales declined 25 percent in January and February, according to data from the statistics bureau on March 16. The value of homes sold fell 25 percent after surging 26 percent in the first two months of 2011.

Home prices may post a “single-digit” decline this year, billionaire developer Vincent Lo, chairman of Shui On Land Ltd. (272), said in an interview in Beijing on March 8. Home prices will not see a crash, he said.

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

[Thucydides]

Hmmmm:

http://blog.foreignpolicy.com/posts/2012/03/21/chinese_coup_watching

Chinese coup watching
Posted By Isaac Stone Fish Wednesday, March 21, 2012 - 4:16 PM Share

Last week, controversial politician Bo Xilai, whose relatively open campaigning for a seat on China's top ruling council shocked China watchers (and possibly his elite peers, as well), was removed from his post as Chongqing's party secretary. He hasn't been seen since. Rumors of a coup, possibly coordinated by Bo's apparent ally Zhou Yongkang, are in the air.

Western media has extensively covered the political turmoil: Bloomberg reported on how coup rumors helped spark a jump in credit-default swaps for Chinese government bonds; the Wall Street Journal opinion page called Chinese leadership transitions an "invitation, sooner or later, for tanks in the streets." The Financial Times saw the removal of Bo, combined with Premier Wen Jiabao's strident remarks at a press conference hours before Bo's removal as a sign the party was moving to liberalize its stance on the Tiananmen square protests of 1989. That Bo staged a coup is extremely unlikely, but until more information comes to light, we can only speculate on what happened.

Reading official Chinese media response about Bo makes it easy to forget how much Chinese care about politics. The one sentence mention in Xinhua, China's official news agency, merely says that Bo is gone and another official, Zhang Dejiang, is replacing him.  But the Chinese-language Internet is aflame with debate over what happened to Bo and what it means for Chinese political stability.

Mainland media sites have begun to strongly censor discussion of Bo Xilai and entirely unsubstantiated rumors of gunfire in downtown Beijing (an extremely rare occurance in Beijing). Chinese websites hosted overseas, free from censorship, offer a host of unsupported, un-provable commentary on what might have happened in the halls of power. Bannedbook.org, which provides free downloads of "illegal" Chinese books, posted a long explanation of tremors in the palace of Zhongnanhai, sourced to a "person with access to high level information in Beijing," of a power struggle between President Hu Jintao, who controls the military, and Zhou, who controls China's formidable domestic security apparatus. The Epoch Times, a news site affiliated with the Falun Gong spiritual movement (which banned in China), has published extensively in English and Chinese about the coup.

Speculation is rife: A Canadian Chinese news portal quoted Deutsche Welle quoting the Hong Kong newspaper Apple Daily quoting a netizen that a group of citizens unfurled a banner in a main square in Chongqing that said "Party Secretary Bo, We Love and Esteem You," and were subsequently taken away by plain-clothes security forces. A controversial Peking University professor Kong Qingdong, a 73rd generation descendant of Confucius, said on his television show that removing Bo Xilai is similar to  "a counter-revolutionary coup;" one news site reported his show has since been suspended.

The Wall Street Journal reports that searching for Bo Xilai's name on Baidu, China's most popular search engine, lacks the standard censorship boilerplate ("according to relevant rules and regulations, a portion of the search results cannot be revealed") that accompanies searching for top leaders like Wen Jiabao and Hu Jintao. A recent search for other Politburo members like Bo rival Wang Yang and People's Liberation Army top general Xu Caihou were similarly uncensored. Conversely, searching for Bo's name on Sina's popular Weibo micro-blogging service now doesn't return any relevant results. A censored fatal Ferrari crash on Sunday  night has raised suspicions of elite foul play, possibly realted to Bo. The bannedbook.org reports that Hu and Zhou "are currently fighting for control of China Central Television, Xinhua News (the official Communist Party wire service), and other ‘mouthpieces,'" which have been eerily but unsurprisingly taciturn about Bo Xilai.   

What we do know, as one message that bounced around Sina Weibo said, is that "something big happened in Beijing."

All that we can say for certain is that "something is happening".

[Thucydides]

More in the real of Kremlinology. So long as the numbers are not adding up (this graph shows a huge drop in energy demand in China), we need to take other information about economic growth and the health of the Chinese economy with a certain degree of scepticism. How can China's economy grow at 7% if energy demand (or shipping demand, another metric discussed upthead) is actually declining? IF this is the Chinese government trying to keep their "bubble" inflated, there will be an even bigger crash than the one we saw in 2008. Stay tuned:

http://www.zerohedge.com/news/no-it-not-just-chinese-new-year

No, It Is Not Just The Chinese New Year
Submitted by Tyler Durden on 03/29/2012 19:33 -0400

The one indicator which the Chinese Politburo can not fudge: power production and hence: demand, speaks volumes about the true state of China's economy.

[Thucydides]

Chinese companies carrying on in this fashion will quickly gain a reputation of being scam artists and be unwelcome wherever they go. The ability to get contracts and bid on foreign work is a valuable addition to your foreign trade, so fouling the nest like this is stupid policy all around:

http://opinion.financialpost.com/category/diane-francis/

China must improve its construction record
Diane Francis  Mar 31, 2012 – 7:00 AM ET | Last Updated: Mar 30, 2012 2:54 PM ET

Chinese companies should be banned from construction work in Canada because of their questionable track record here and around the world.

It was shocking that Enbridge Inc.’s Pat Daniel said his company was willing to allow a Chinese company to buy a stake in and to bid for the construction of the proposed Northern Gateway oil sands pipeline.

Not only should Chinese companies be banned from construction or bidding but Investment Canada should ban them from buying resource companies or related assets.

China’s strategy is to buy resources around the world, then low-ball to get construction contracts by using Chinese laborers and materials. This is not only damaging to the domestic economy, and unnecessary, but in some cases laws and obligations have been flouted.

Just for the record, my husband heads Canada’s largest infrastructure and construction public company in Canada.

In 2007, Sinopec Shanghai Engineering Company brought in 132 Chinese workers to an Alberta oil sands site to assemble their storage tanks and do other work. Two workers were killed and several injured. The remaining Chinese workforce was moved out of Alberta and work stopped.

The Alberta government charged Sinopec, its subsidiary and their oil sands client with 53 safety charges. Sinopec and its branch plant have refused to appear in court. They say they have not been served papers because they are in China where they cannot be served papers to appear in court. Instead of acceding to Canadian law, they have not appeared.

In November, an Alberta Court of Appeal ruled the company must stand trial on these serious charges. In February, Sinopec said it wants the Supreme Court of Canada to overturn this ruling because it should be exempt.

The 132 Chinese workers were not paid an estimated $3.17 million by their Chinese employer even though they worked four months before the accident. Alberta employment standards spokesman Barrie Harrison said that the prime contractor, the Canadian oil sands project client, put the $3.17 million in wages and benefits in trust even though it had no obligation to do so.

In an interview last year, Harrison said: “We are still trying to determine the best, most secure method of returning these funds to the workers, who are now either back in China or working at other sites around the world. We’ve had nothing new to report on this file for quite some time.”

The Canadian embassy in Beijing has been involved in trying to right this wrong, at taxpayer expense.

This outrageous behavior by China and its companies should be reason enough to ban Chinese companies from bidding on construction work or having workforces in Canada. After all, a major corporation has no respect for the rule of law here; has damaged Chinese workers; damaged its Canadian client; cost the taxpayers of Alberta a great deal of money to try and clean up the mess and prosecute wrongdoing and has cost the taxpayers of Canada, Canada’s immigration department and Canada’s justice system as well.

This behavior is not unique to Canada.

Shoddy work and broken promises have occurred elsewhere. In Angola, in July 2010, more than 150 patients had to be evacuated from a new Chinese-built hospital in Luanda, after its walls began cracking and bricks began disintegrating. China Overseas Engineering Group Co. (COVEC) built the hospital for $8 million. Reports began to come out in the local media that many roads, schools, hospitals and other infrastructure completed by the Chinese were sub-standard or unsafe and promises to employ Angolans were not kept.

Another example was reported in 2010. The Chinese were finally able to penetrate the European Union when COVEC won a bid to build a major highway in Poland by bidding less than half the price of domestic contractors. This caused consternation across the EU because of Chinese tactics around the world. The pattern is well worn: Chinese firms low ball to beat out local competition then bring in substandard materials and workers from China.

The Poles were committed to tender bidding for the contracts, and were stuck with accepting COVEC’s basement bid but were wise to the tactics. So they stipulated that the company could not import Chinese materials, supplies or labour.

But COVEC reportedly flouted this requirement and started to bring in Chinese workers anyway, claiming that Polish workers were not cooperative and would not take pay cuts.

Then they began sourcing supplies from China, claiming Polish suppliers refused to match Chinese prices.

In June 2011, COVEC stopped work. Poland sued COVEC for $271 million in damages for breach of contract. And the country has had to spend huge amounts to complete the highway in time for the 2012 European Football Championships in Poland this summer. COVEC told China Daily it was asking for compensation.

For these reasons and more, Canada must ban any bidding or work permits to Chinese workforces. They simply are not acceptable. They are also not the only buyers for oil sands production. A pipeline can deliver oil to the west coast and then to Asian and South American markets by sea.

[Thucydides]

A report on weapons development in China. This is what the PLA and PLAN are working on today: http://www.uscc.gov/researchpapers/2012/China-Indigenous-Military-Developments-Final-Draft-03-April2012.pdf

[Ignatius J. Reilly]

As much as the carrot has been offered, the stick is still augmenting.
For folks such as me &  mine on Taiwan.

We all well know we are a Rock unto both the forces of the U.S.A. and of  Nippon.
We just had our Patriots upgraded, but by far the most worrying is the doubling of range of many of the recent upgrades in observable PLA missile launch sites.
 

Good article here:

NO MATTER how often China has emphasised the idea of a peaceful rise, the pace and nature of its military modernisation inevitably cause alarm. As America and the big European powers reduce their defence spending, China looks likely to maintain the past decade’s increases of about 12% a year. Even though its defence budget is less than a quarter the size of America’s today, China’s generals are ambitious. The country is on course to become the world’s largest military spender in just 20 years or so (see article).

Much of its effort is aimed at deterring America from intervening in a future crisis over Taiwan. China is investing heavily in “asymmetric capabilities” designed to blunt America’s once-overwhelming capacity to project power in the region. This “anti-access/area denial” approach includes thousands of accurate land-based ballistic and cruise missiles, modern jets with anti-ship missiles, a fleet of submarines (both conventionally and nuclear-powered), long-range radars and surveillance satellites, and cyber and space weapons intended to “blind” American forces. Most talked about is a new ballistic missile said to be able to put a manoeuvrable warhead onto the deck of an aircraft-carrier 2,700km (1,700 miles) out at sea.
http://www.economist.com/node/21552212

[Thucydides]

The axe falls on Bo Xilai and his wife. The ultimate fallout is hard to gauge, how many supporters did Bo Xilai have and how well are they positioned? While a coup may be unlikely, a vicious behind the scenes power struggle is not:

http://latimesblogs.latimes.com/world_now/2012/04/bo-china-party-posts-murder.html

Ex-Chongqing leader Bo stripped of party posts, wife detained
April 10, 2012 | 10:01am

Bo Xilai, the charismatic former Communist Party chief in the Chinese city of Chongqing, has been stripped of his remaining leadership roles for "violations of party discipline" and his wife has been detained on suspicion of murdering a British businessman, state-run media reported Tuesday.
 
Bo's ouster last month as party secretary for Chongqing unleashed one of the most high-profile political shakeups in China since the crushing of pro-democracy demonstrations at Tiananmen Square in 1989.
 
China's CCTV reported that Bo has been suspended from his posts on the party Central Committee and the 25-member Politburo and that his case has been handed over to a disciplinary inspection commission for investigation.
 
In a separate dispatch from the official New China News Agency, it was announced that Bo's wife, Gu Kailai, has been "highly suspected" in the Nov. 15 death of British businessman Neil Heywood.
 
The news agency reported that Bo's wife and their housekeeper, Zhang Xiaojun, had been taken into  custody after a reinvestigation of Heywood's death led authorities to suspect them of "intentional homicide." The report gave no further details of the case or how investigators came to suspect Bo's wife.
 
Bo, the son of Communist Party founder Bo Yibo, had been considered a contender for the top leadership in China for his revolutionary zeal and inspirational powers in his populous southwest municipality. He was sacked as Chongqing party leader on March 15. The move was seen as censure after a longtime ally and former police chief, Wang Lijun, sought temporary refuge at a U.S. consulate in February.

[E.R. Campbell]

Bo had the same sort of constituency that Putin cultivates: people who are not faring as well as they hoped in the new China and who crave a return to Mao, with all that implies, just as many Russians 'miss' Stalin, or what they thought Stalin brought to Russia.

But Bo crossed Hu Jintao and the centre ... and he did so from a position of weakness. Hu is about as far "left" as the Chinese are prepared to go, Bo was way "out there," too far beyond the consensus limits.