China

[ccp]

Jane Goodall alarmed China plundering Africa, but admits destructive habits changing
(02-18 11:30)
China is exploiting Africa's resources just like European colonizers did, with disastrous effects for the environment, acclaimed primatologist Dr Jane Goodall told AFP.
 On the eve of her 80th birthday, the fiery British wildlife campaigner is traveling to world capitals lecturing on the threats to our planet.
 During the past decade China has been investing heavily in African natural resources, developing mines, oil wells and running related construction companies.
 Activists accuse Chinese companies of paying little attention to the environmental impact of their race for resources.
“In Africa, China is merely doing what the colonialist did. They want raw materials for their economic growth, just as the colonialists were going into Africa and taking the natural resources, leaving people poorer,'' she told AFP in an interview in Johannesburg in South Africa.
 The stakes for the environment may even be larger this time round, she warns.
“China is bigger, and the technology has improved... It is a disaster.''
 Other than massive investment in Africa's mines, China is also a big market for elephant tusks and rhino horn, which has driven poaching of these animals to alarming heights.
 But Goodall, who rose to fame through her ground-breaking research on chimpanzees in Tanzania, is optimistic.
“I do believe China is changing,'' she said, citing as one example Beijing's recent destruction of illegal ivory stockpiles.
“I think 10 years ago, even with international pressure, we would never have had an ivory crush. But they have,'' she added.
“I think 10 years ago the government would never have banned shark fin soup on official occasions. But they have.''
 Her organization Roots and Shoots, founded over two decades ago to instil conservation values in children, has also become involved in China.
“We work with hundreds of Chinese children, and they are not different from children we work with here. They all love nature, they love animals, they want to help, there's no difference because they're Chinese,'' she said.
 Young people's enthusiasm to change the world gives her hope.
“These young people will become the next parents, the next teachers, the next lawyers, the next business people and the next politicians, some of them.''
“The biggest problem is that people understand but don't know what to do,'' she said.
“If you have one thousand, one million or eventually several million people all making the right choice, all thinking about the consequence of their behavior, then we're going to see big change.''
 Another glimmer of hope is “this amazing resilience of nature,'' she continued, citing as an example the China's Loess Plateau on the Yellow River bouncing back after massive soil erosion.
“It was set to be the biggest totally destroyed ecosystem in the world,'' she said.
 A US$400-million project funded by the Chinese government and international donors introduced better farming methods in the area, which greatly reduced erosion and lifted 2.5 million people out of poverty, according to the World Bank.
“That took a lot of money, but if you look at it now, it's all green, lush and farmland, and children have come back from the cities. It's even got a whole area for wildlife,'' said Goodall.
“We still have a small window of time to change things.''


 
 

   

 
 
   
 
       

 

 
     
 
 
   
 
   

 

   

     

   

   

 
 

[ccp]

while speaking of Jane goodall one must watch this video and as noted anyone who watches should bring their hanky along;

It is the window video in the third picture box 3 minutes long:

bahttp://www.care2.com/causes/the-heartfelt-hug-that-said-it-all-chimp-thanks-jane-goodall-for-rescue.htmlck in the wild   

[Crafty_Dog]

SHOCK: Wave of Bankruptcies Set to Hit China
March 17, 2014 by Young Research
Print This Post   

In a shocking admission Chinese Premier Li Keqiang warned lenders in the country to prepare for a wave of defaults on debt in the coming year. China had so far been able to prevent embarrassing defaults among its corporations, even by presumably bailing out the world’s largest bank earlier this year (no one knows exactly what happened here but common sense would point to a hidden government bailout). But the government couldn’t, or wouldn’t, act fast enough to save Shanghai Chaori Solar Energy last week. It’s a signal from the Communist Party that Beijing is getting out of the bailout business. Borrowers, lenders and investors should take heed. Phillip Inman reports that the Middle Kingdom is facing serious challenges.

    Li’s warning followed the failure of Shanghai Chaori Solar Energy to make a payment on a 1bn yuan (£118m) bond last week. The default was the first of its kind for China and widely seen as pointing to the end of 11th-hour government bailouts for troubled enterprises.

    Some analysts said the decision to let some indebted firms collapse was a sign the authorities had learned from the Japanese boom and bust experience of the late 1980s and early 1990s. Tokyo was plunged into two “lost” decades of stagnation after it prevented zombie companies from declaring bankruptcy – even blocking petitions from bondholders in the courts – when a property collapse exposed debts many times the value of their businesses.

    However, figures this week revealed that Beijing is copying the Japanese tactic of ramping up public infrastructure spending to replace the steep slowdown in private sector investment. Fixed asset investment, a measure of government spending on infrastructure, expanded 17.9% during the first two months of 2014, the National Bureau of Statistics said.

If China’s economic troubles force it to reduce purchases of U.S. treasury securities, and the Fed continues to taper its own purchases, there’s no telling what could happen to interest rates. There could be serious risks to America’s ability to fund itself. You can find our advice on profiting from the risks and opportunities of such shocks in our premium strategy reports, Richard C. Young’s Intelligence Report and Young Research’s Global Investment Strategy.

=======================

http://www.youngresearch.com/videos/video-faber-chinas-unwind-will-disaster/?awt_l=PWy8k&awt_m=3fT95PEyuzzlu1V&utm_source=rss&utm_medium=rss&utm_campaign=video-faber-chinas-unwind-will-disaster

[DougMacG]

"If China’s economic troubles force it to reduce purchases of U.S. treasury securities, and the Fed continues to taper its own purchases, there’s no telling what could happen to interest rates. There could be serious risks to America’s ability to fund itself. "

I think they mean there could be serious risks to our continuing ability to not fund ourselves.

[DougMacG]

As predicted here...

China Property Collapse Has Begun
http://www.forbes.com/sites/gordonchang/2014/04/13/china-property-collapse-has-begun/

Nothing is going right for Hangzhou at this moment.  Walmart will be closing its Zhaohui store in that city on April 23 as a part of its overall plan to dump marginal locations—about 9% of the total—in China.

Thanks to the world’s largest retailer, another large block of space in Hangzhou, the capital of Zhejiang province, will go on the market at a time when there is generally too much supply.  The problem is especially pronounced in the city’s premium office market.  Hangzhou’s Grade A office buildings at the end of 2013 had, according to Jones Lang LaSalle, an average occupancy rate of 30%.

The real weakness, however, is Hangzhou’s residential sector.  The cause is simple: massive overbuilding.  Sara Hsu of the State University of New York at New Paltz writes that Hangzhou faces “burgeoning swaths of empty apartment units.”

Hangzhou’s market has not yet collapsed.  There are still secondary sales, for instance.  Singapore’s Straits Times reports Allen Zhao, a businessman, has been looking to sell his two-bedroom flat in Hangzhou for 2 million yuan.  His neighbor just let go a similar unit for 1.7 million.  If Zhao also sells for that amount, he will make a profit, but he will be disappointed.  “That is not much more than the price I paid in 2012,” Zhao told the paper.  “Now I’m regretting not selling earlier—more bad news about the property market keeps coming in every day.”

New homes also face price pressure.  Developers in Hangzhou are now offering deep discounts, and investors and owners are noticing.  And not just in that city.  “It seems that the 30% price cut in Hangzhou really changed the way Chinese people think about real estate,” writes Anne Stevenson-Yang of J Capital Research, “and I doubt there is any turning back from here.”  (more at link)

[Crafty_Dog]

http://online.wsj.com/news/articles/SB10001424052702303456104579487790125203828?mod=WSJ_hppMIDDLENexttoWhatsNewsSecond&mg=reno64-wsj

[Crafty_Dog]

Addresses themes I have discussed here for years, but comes to a more optimistic sense of things.  I can't this this is wrong though , , ,

China's Growth Struggles
Market reform is crucial to avoiding the middle-income trap.
Updated April 20, 2014 5:16 p.m. ET

China's first quarter growth of 7.4% beat expectations last week, but it was a six-quarter low and below Beijing's 2014 target of 7.5%. Some analysts worry the country is vulnerable to a property market collapse and explosion of bad bank loans. So is the main engine of global growth about to stall?

One thing most everyone agrees on: China is in transition from a go-go phase driven by abundant capital and labor (think of the U.S. in the late 19th century) to a more mature development track in which growth depends on productivity gains. At this point other countries such as Brazil and Malaysia fell into the "middle-income trap" and stagnated, while South Korea and Taiwan powered through to become wealthy, although not without crises along the way.

Through the 2000s, Beijing struggled to rein in growth to avoid inflation, and any time the economy looked to be slowing it simply eased restrictions on investment and was off to the races again. Now gross capital formation, which averaged 15% from 2000-10, is around 10% as costs rise and profits are squeezed. The economy is overleveraged, with total debt (government and private) exceeding 200% of GDP. Negative purchaser managers index (PMI) indicators reflect the realization that companies can't rely on high GDP growth to repay loans.

Beijing's new leaders seem to recognize that financial reform and a period of deleveraging are needed to meet this challenge. Since slower growth is a necessary part of this program, the current slowdown could be read as a positive sign that the days of growth at any cost are over. The announcement last month that deposit rates will be liberalized over the next two years signals an end to financial repression, by which interest paid on savings was kept low to make borrowing cheaper. That suppressed consumption and led to the most lopsided economy the world has ever seen, with investment accounting for about 50% of GDP.

Like many of China's past reforms, de facto deposit-rate liberalization started well before the official announcement, in the form of what's been called the shadow banking system. While dangerous risks may be hidden here, there is a considerable upside: The state banks created entities to attract deposits at market rates of interest.

This "reform" came about because banks found that profit margins were shrinking on traditional loans to state-owned companies and local governments. So they sold high-return "wealth-management products" (WMPs) to investors and used the money to lend at still higher rates to private companies. By pricing risk, WMPs make the allocation of capital more efficient.

Another piece of good news is that access by private companies to bank loans has grown dramatically, surpassing the loans to state enterprises in 2012. This would have happened even faster if Beijing's post-2008 stimulus hadn't given a big boost to state firms. Private firms now account for two-thirds of investment, up from 40% a decade ago.

Over the last decade, demographic trends have pushed wages up faster than productivity growth. You wouldn't know it with all the angst about high inequality, but this trend has put pressure on managers to find efficiency gains. And it will help force Beijing to sell off state-owned enterprises that can't keep up. All of this suggests that China may follow South Korea and Taiwan and avoid the middle-income trap.

But it doesn't say whether a crisis is brewing in the next few years. Most crisis scenarios concern the property market, which accounts for almost a quarter of the economy. The problem is not so much high prices, since the average cost of an apartment has tracked rising urban incomes. Nor is it leverage, since regulations restrict mortgages and many buyers pay with cash. It is simply volume.

A side-effect of China's low bank-deposit rates and dysfunctional stock market is that many households have put their savings into empty apartments, which are so numerous they have spawned "ghost cities." When prices begin to fall, most owners will likely hold on and wait for a rebound. That means a long period of stagnation as the excess supply gradually comes onto the market.

The loss of such a big driver of growth will be painful, but by itself it shouldn't trigger the kind of financial crisis the U.S. saw in 2008. Chinese firms, ever flexible, will seek out new opportunities, and that could pay some surprising dividends. One reason China has been slow to produce innovative firms or global brands is that much of the country's talent and capital have been sucked into the production of empty buildings.
***

China's economic slowdown recalls Adam Smith's remark, often quoted by Milton Friedman : "There is much ruin in a nation." It is a reminder that even though many things go wrong, market forces, if allowed to operate, generally bring about a positive outcome. We can't rule out that there is so much malinvestment on balance sheets that a crisis is coming. But the fact that China's leaders still have the courage to expand the market's role gives hope that this slowdown doesn't herald the end of its growth story.

[Crafty_Dog]

http://blogs.wsj.com/chinarealtime/2014/05/05/chinas-property-bubble-has-officially-popped-report-says/?mod=WSJBlog&mod=chinablog

[Crafty_Dog]

http://www.nytimes.com/2014/07/17/business/international/chinas-gdp-expands-but-businesses-arent-feeling-the-effect.html?emc=edit_th_20140717&nl=todaysheadlines&nlid=49641193&_r=0 

[ccp]

"A line drawing of the scramjet-powered vehicle shows that the concept being studied for eventual construction is nearly identical to an experimental National Aeronautics and Space Administration (NASA) scramjet vehicle called the X-43."

Duh how'd that happen?   Anyway the article:

****Report Reveals Chinese Military Developing New Scramjet-Powered Hypersonic Missile

BY:  Bill Gertz   
July 9, 2014 5:00 am

China’s military is working on a jet-powered hypersonic cruise missile in addition to an advanced high-speed glide warhead that was tested earlier this year.

A Chinese technical journal disclosed new details of research on what China’s defense researchers are calling a hypersonic cruise vehicle.

A line drawing of the scramjet-powered vehicle shows that the concept being studied for eventual construction is nearly identical to an experimental National Aeronautics and Space Administration (NASA) scramjet vehicle called the X-43.

Publication of details of work on the powered hypersonic cruise vehicle indicates China is pursuing a second type of ultra-fast maneuvering missile capable of traveling at speeds of up to Mach 10—nearly 8,000 miles per hour. Such speeds create huge technical challenges for weapons designers because of the strain on materials and the difficulty of control at high velocities.

Large numbers of Chinese military writings in recent years have focused on hypersonic flight. However, few have addressed scramjet powered hypersonic flight.

The Washington Free Beacon first disclosed Jan. 13 that China has conducted the first test of an unpowered hypersonic glide vehicle that U.S. intelligence agencies believe will be used to deliver strategic nuclear warheads through U.S. missile defenses.

The January test of the Wu-14 hypersonic vehicle signaled the beginning of what analysts say is the start of a new high-technology arms race to build high speed maneuvering strike vehicles.

The United States is developing both scramjet-powered and glide-hypersonic missiles. Russia’s government has made development of hypersonic missiles a priority.

The Chinese report outlines in technical detail how a scramjet-powered cruise vehicle operates at speeds greater than Mach 5 and discusses how to integrate airframe design with scramjet propulsion.

A scramjet is an engine that uses supersonic airflow to compress and combust fuel, creating a highly efficient propulsion system with few parts.

The report analyzed “preliminary design methods for airframe/engine integrative configuration.”

The analysis “may serve as a basis for quick preliminary design and performance evaluation of airframe/engine integrative configuration” for a future Chinese hypersonic cruise vehicle, the report said.

The scramjet cruise vehicle was described in a technical military journal called Command Control & Simulation. The article was published by the 716 Research Institute of the state-run China Shipbuilding Industry Corp., China’s largest maker of warships, submarines, and torpedoes.

Chinese drawing of hypersonic cruise missile Command Control & Simulation
Chinese drawing of hypersonic cruise missile / Command Control & Simulation

The study by China’s major naval weapons builder is a sign the PLA may be considering the strike vehicle for use against U.S. aircraft carriers and warships as part of what the Pentagon calls “anti-access, area denial” weapons.

China’s hypersonic weapons are among the most secret programs within the Chinese military, along with anti-satellite weapons and cyber warfare tools. However, China’s Defense Ministry confirmed the test asserting that it was “normal” scientific experiment and not aimed at any foreign state.

Military experts said the disclosure of the scramjet cruise missile is unusual and part of China’s large-scale high-technology arms buildup.

“China long ago identified hypersonics as a critical future military technology and has invested heavily in its development for future weapons,” said Rick Fisher, with the International Assessment and Strategy Center. “The old Bush administration concept of Prompt Global Strike using hypersonic non-nuclear warheads may be dormant in Washington, but it is very much alive and flourishing in Beijing.”

Fisher said a scramjet vehicle would have advantages over the Wu-14 glide vehicle, including better-sustained speeds, some maneuvering, and a depressed trajectory that would complicate efforts by U.S. missile defenses to intercept the ultra-fast maneuvering strike missile.

China’s Chengdu Aircraft Corporation has been leading the development of a hypersonic scramjet engine test platform similar to the decade-old Pentagon-NASA X-43, Fisher said.

Pentagon-NASA X-43 hypersonic scramjet powered vehicle NASA
Pentagon-NASA X-43 hypersonic scramjet powered vehicle / NASA

Fisher said the Chinese report does not make clear whether China is concentrating on scramjet power for future weapons. However, it could signal that researchers have made advances in such engines and materials.

Larry Wortzel, a former China-based military intelligence officer, said Chinese hypersonic arms are what Beijing calls “assassins’ mace” weapons that will give China a strategic edge in any future conflict with the United States.

“China is continuing with a number of programs to develop what Beijing considers to be ‘assassins’ mace’ weapons that defeat conventional defenses, including these hypersonic strike vehicles,” Wortzel said in an email. “The United States must move forward with its airborne and ship-borne laser programs and electromagnetic guns if we are to be able to counter China’s new weapons.”

U.S. hypersonic missile programs have been limited by the federal defense spending crisis that has constrained advanced weapons research.

Congress approved $70.7 million for an Army hypersonic missile program—an amount that is considered far less than what both China and Russia are investing in hypersonic arms.

Alan R. Shaffer, principal deputy assistant defense secretary for research and engineering, told a defense industry conference that a U.S. scramjet-powered hypersonic prototype, the X-51, is a leading choice for a military system of conventional rapid precision strike.

“We, the U.S., do not want to be the second country to understand how to have controlled scramjet hypersonics,” Shaffer said.

The Air Force Research Laboratory announced July 3 it will set up a new High Speed Experimentation Branch to study hypersonics at Arnold Air Force Base.

Russian Deputy Prime Minister Dmitry Rogozin said July 3 that Russian missile manufacturers must master the technology for both precision-guided and hypersonic weapons. Moscow has set a goal of 2020 to build its first hypersonic missile prototype.

The People’s Liberation Army (PLA), in a strategic review published last year, stated that new U.S. hypersonic weapons and other nations’ development of hypersonic arms pose a major threat to China’s national security.

The review said new weapons capable of striking land from space will have a “serious impact on national security.”

Among the weapons being developed by foreign powers, the Chinese military said, are “near space craft, spacecraft, and transatmospheric vehicles.”

It was the first time China mentioned the threat posed by the new generation of hypersonic threats in a public document. The report, “Strategic Review 2013,” was published by the PLA think tank Center for National Defense Policy.

It warned that “the role of space power is changing from information support, to space command operations and space-to-ground attacks.”

“The United States is intensifying the construction of its space confrontation capabilities and building a rapid responsive space system,” the report said, adding that the shift has begun from using space for support to ground attacks.

The report noted the U.S. development of near-space strike vehicles, including the X-51, a scramjet powered hypersonic vehicle developed by Boeing, the HTV-2, a glide strike vehicle, and the X-37 space plane launched atop a rocket. The PLA review called these weapons “new measures of power” and stated that they were “a bid to eliminate the boundary between air and space.”

Lee Fuell, a technical intelligence specialist at the Air Force National Air and Space Intelligence Center, told a congressional hearing in January that China’s hypersonic glide vehicle was a ballistic missile-launched system that glides and maneuvers to its target at speeds up to Mach 10 (about 7,611 mph).

Fuell said U.S. intelligence agencies believe that the glide vehicle is “associated with [China’s] nuclear deterrent forces.” Hypersonic strike vehicles also could be used for conventional precision-guided strikes, he said.

A Chinese-language version of article is available from the Canada-based Oriprobe information services.

This entry was posted in National Security and tagged China. Bookmark the permalink.

[Crafty_Dog]

Scary.

Please post in the Military Science thread as well.

[Crafty_Dog]

 The End of Consensus Politics in China
Geopolitical Weekly
Tuesday, August 5, 2014 - 03:02 Print Text Size
Stratfor

By John Minnich

Chinese President Xi Jinping's anti-corruption campaign is the broadest and deepest effort to purge, reorganize and rectify the Communist Party leadership since the death of Mao Zedong in 1976 and the rise of Deng Xiaoping two years later. It has already probed more than 182,000 officials across numerous regions and at all levels of government. It has ensnared low-level cadres, mid-level functionaries and chiefs of major state-owned enterprises and ministries. It has deposed top military officials and even a former member of the hitherto immune Politburo Standing Committee, China's highest governing body. More than a year after its formal commencement and more than two years since its unofficial start with the downfall of Chongqing Party Secretary Bo Xilai, the campaign shows no sign of relenting.

It is becoming clear that this campaign is unlike anything seen under Presidents Jiang Zemin and Hu Jintao. Both carried out anti-corruption drives during their first year in office and periodically throughout their tenures as a means to strengthen their position within the Party and bureaucracy and to remind the public, however impotently, that Beijing still cared about its well being. But that was housekeeping. This appears to be different: longer, stronger, more comprehensive and more effective.

With this in mind, we ask: What is the fundamental purpose of Xi's anti-corruption campaign? An attempt to answer this question will not tell us China's political future, but it will tell us something about Xi's strategy -- not only for consolidating his personal influence within the Party, government and military apparatuses, but also and more important, for managing the immense social, economic, political and international pressures that are likely to come to a head in China during his tenure. Getting to the heart of the anti-corruption campaign -- and therefore understanding its inner logic and direction -- provides insights on the organization and deployment of political power in China and how those things are changing as the Party attempts to remake itself into an entity capable of ushering China safely through the transformation and crises to come.

The Campaign Continues

The announcement July 29 of a formal investigation into retired Politburo Standing Committee member Zhou Yongkang marked something of an end to the first major phase of Xi's anti-corruption campaign. By all accounts, Zhou was one of the most powerful men in China throughout the 2000s. During his tenure on the Standing Committee, Zhou controlled the country's domestic security apparatus, a pillar of the Chinese government's power. Prior to that, he had served as Party secretary of Sichuan province, an important inland industrial center and breadbasket with historically strong regionalist tendencies. And before Sichuan, Zhou chaired state-owned China National Petroleum Corp., the country's most powerful energy firm and the direct descendent of the Ministry of Petroleum. Zhou was known to sit at the apex of at least these three power bases, and his influence likely extended deep into many more, making him not only a formidable power broker but also, at least in the case of his oil industry ties, a major potential obstacle to reform. Certainly, Zhou and his vast networks of influence and patronage were not the sole targets of the Xi administration's crackdown, but he and his associates, including former Chongqing Party Secretary Bo Xilai, widely seen as an early competitor of Xi, formed its central axis.

Now begins another phase. There are indications that it will center on the military. There are other signs that it will target Shanghai, the primary power base of Jiang Zemin and the locus of financial sector reform in China. Further neutralization of Zhou's allies in energy and public security will likely be necessary, too, as the Xi administration seeks to accelerate market-oriented reforms in the oil and natural gas sectors and to reinforce its internal security footprint in peripheral regions like Xinjiang as well as the Han Core. But ultimately, it is unclear which individuals and networks will anchor the next phase. The possibilities are as numerous as the Xi administration's myriad near- and medium-term policy goals.

The question of who or what will be targeted next is subordinate to that of why. Not why, specifically, they will be targeted, but why the campaign must and will continue. This brings us back to our question regarding the fundamental purpose of the anti-corruption campaign. It may be impossible to divine, beyond mere speculation, its future on a tactical level -- that is, what will come in three, five or eight months' time. But the direction of the campaign so far, combined with other actions by Xi, such as the formation of a unified National Security Council chaired by Xi himself and his apparent wresting of the reins of economic and social reform from Premier Li Keqiang, suggest that some other and deeper shift is underway, one for which the anti-corruption campaign is at once a vehicle and a symptom. Stratfor believes this shift involves nothing less than an attempt to rework not only the way the Communist Party operates but also the foundations of its political legitimacy.

To understand why, we look first not at Xi and what he has done thus far but at China and what it will undergo over the next decade. This will give us a sense of the external constraints and pressures of which Xi's administration is no doubt aware and to which it has no option but to respond. These constraints and pressures, more than any other factor, will shape Xi's actions and the Communist Party's evolution in the years to come.
A World Constrained

Over the next decade, the defining constraints on China will emanate from within. They are fundamentally economic in nature, but they cannot be disassociated from politics and society.

China is in the midst of an economic transformation that is in many ways unprecedented. The core of this transformation is the shift from a growth model heavily reliant on low-cost, low value-added exports and state-led investment into construction to one grounded in a much greater dependence on high value-added industries, services and above all, domestic consumption. China is not the first country to attempt this. Others, including the United States, achieved it long ago. But China has unique constraints: its size, its political system and imperatives, and its profound regional geographic and social and economic imbalances. These constraints are exacerbated by a final and perhaps greatest limit: time. China is attempting to make this transition, one which took smaller and more geographically, socially and politically cohesive countries many decades to achieve, in less than 20 years.

The bulk of this work will take place over the next 10 years at most, and more likely sooner, not because the Xi administration wants it to, but because it must. The global financial crisis in 2007-08 brought China's decadeslong export boom cycle to a premature close. For the past six years, the Chinese government has kept the economy on life support in the form of massively expanded credit creation, government-directed investment into urban and transport infrastructure development and, most important, real estate construction. In the process, local governments, banks and businesses across China have amassed extraordinary levels of debt. Outstanding credit in China is now equivalent to 251 percent of the country's gross domestic product, up from 147 percent in 2008. Local governments alone owe more than $3 trillion. It is unknown -- deliberately so, most likely -- what portion of outstanding debts are nonperforming, but it is likely far higher than the official rate of 1 percent.

Despite claims that China's investment drive was and is irresponsible -- and certainly there are myriad anecdotal cases of gross misallocation of capital -- it nonetheless fulfills the essential role of jumpstarting the country's effort to "rebalance" to a new, more urban and more consumption-based economic model. But the problem, again, is time. China's real estate sector is slowing. Sales, home prices and market sentiment are falling, even in the face of continued expansion of the overall credit supply. The days of high growth in the housing construction sector are numbered and prices, along with overall activity, are on a downward trend -- one that can and will be hedged by continued high levels of investment and credit expansion, but not one that can be stopped for long. Real estate and related construction activity will remain the crucial component of China's economy for the foreseeable future, but they will no longer be the national economic growth engines they were between 2009 and 2011.

This means that in the next few years, China faces inexorable and potentially very rapid decline in the two sectors that have underpinned economic growth and social and political stability for the past two or more decades: exports and construction. And it does so in an environment of rapidly mounting local government and corporate debt, rising wages and input costs, rising cost of capital and falling return on investment (exacerbated by new environmental controls and efforts to combat corruption) and more. Add to these a surge in the number of workers entering the workforce and beginning to build careers between the late 2010s and early 2020s, the last of China's great population boom generations, and the contours emerge of an economic correction and employment crisis on a scale not seen in China since Deng came to power.

The solution, it would seem, lies in the Chinese urban consumer class. But here, once more, time is China's enemy. Chinese household consumption is extraordinarily weak. In 2013, it was equivalent to only 34 percent of gross domestic product, compared to 69-70 percent in the United States, 61 percent in Japan, 57 percent in Germany and 52 percent in South Korea. In fact, it has fallen by two percentage points since 2011, possibly on the back of the anti-corruption campaign, which has curbed spending by officials that appears to have been erroneously counted as private consumption. There is reason to believe that household consumption is somewhat stronger than the statistics let on, but it is not nearly strong enough to pick up the slack from China's depressed export sector and depressive construction industries. China's low rates of urbanization relative to advanced industrial economies underscore this fundamental incapacity.

Whatever the Chinese government's stated reform goals, it is very difficult to see how economic rebalancing toward a consumption- and services-based economy succeeds within the decade. It is very difficult to see how exports recover. And it is very difficult, but slightly less so, to see how the government maintains stable growth through continued investment into housing and infrastructure construction, especially as the real estate market inevitably cools. This leaves us with a central government that either accepts economic recession or persists in keeping the economy alive for the sake of providing jobs but at risk of peril to its reform initiatives, banks and local governments. The latter is ugly and very likely untenable under the current political model, which for three decades has staked its claim to legitimacy in the promise of stable employment, growth and rising material prosperity. The former is absolutely untenable under the current political model.

The pressures stemming from China's economy -- and emanating upward through Chinese society and politics -- will remain paramount over the next 5-10 years. The above has described only a very small selection of the internal social and economic constraints facing China's government today. It completely neglects public anger over pollution, the myriad economic and industrial constraints posed by both pollution and pervasive low-level corruption, the impact of changes in Chinese labor flows and dynamics, rising education levels and much more. It completely neglects the ambivalence with which many ordinary Chinese regard the Communist Party government.

It also neglects external pressures and risks, whether economic or military. What would another global economic crisis and recession do to China's already hobbled export sector? What would a prolonged spike in oil prices -- the result, perhaps, of deepening crises in Russia or Iraq -- mean for Chinese industry and its change to China's growing army of car drivers? What impact will structural changes in the East Asian and world systems, such as Japan's attempt at a national economic and military revival, have on China's overseas economic and maritime interests, or on Chinese society's confidence in the strength of its military and government? The potential risks, many of them of moderate to high probability, are legion. It takes only one to materialize to dramatically reduce the likelihood that the Communist Party, as currently constituted, survives China's transformation.
The Old Model Breaks Down

Xi knows this. He and his advisers know China's virtually insurmountable challenges better than anyone. They know how little time China has, how fragile the Party's political legitimacy -- its claim to the Mandate of Heaven -- has become over the past three decades and how great the consequences of inaction will be. But they also know how much potentially greater are the consequences of failure. Knowing all these things, they are acting to reconstitute the Party one cautious step at a time.

The anti-corruption campaign is one of those steps. It serves many overlapping functions: to clear out potential opponents, ideological or otherwise; to consolidate executive power and reduce bureaucratic red tape so as to ease the implementation of reform; to remind the Chinese people that the Communist Party has their best interests at heart; and to make it easier to make tough decisions.

Underlying and encompassing these, we see the specter of something else. The consensus-based model of politics that Deng built in order to regularize decision-making and bolster political stability during times of high growth and that effectively guided China throughout the post-Deng era is breaking down. It can no longer hold in the face of China's transformation and the crises this will bring. Simply put, now that its post-1978 contract with Chinese society -- a social contract grounded in the exchange of growth for stability -- is up, the Party risks losing the public support and political legitimacy that this contract undergirded. A new and more adaptive but potentially much less stable model is being erected, or resurrected, from within the old. This model is grounded more firmly in the personality and prestige of the president and more capable, or so Chinese leaders seem to hope, of harnessing and managing the Chinese nation through what could well be a period of turmoil.

This does not necessarily mean a return to Imperial China, nor does it mean a return to the days and methods of the Great Helmsman, Mao. It doesn't even mean the new model will succeed, even remotely. What it means will be decided only by the specific interplay of structure and contingency in the unfolding of history. But it is this transformation that serves as the fundamental, if latent, purpose for Xi's anti-corruption campaign.

Editor's Note: Writing in George Friedman's stead this week is Stratfor Asia-Pacific Analyst John Minnich.

Read more: The End of Consensus Politics in China | Stratfor

[Crafty_Dog]

 Centripetal and Centrifugal Forces at Work in the Nation-State
Geopolitical Weekly
Tuesday, September 23, 2014 - 03:00 Print Text Size
Stratfor

By Zhixing Zhang

"Here begins our tale: The empire, long divided, must unite; long united, must divide. Thus it has ever been." This opening adage of Romance of the Three Kingdoms, China's classic novel of war and strategy, best captures the essential dynamism of Chinese geopolitics. At its heart is the millennia-long struggle by China's would-be rulers to unite and govern the all-but-ungovernable geographic mass of China. It is a story of centrifugal forces and of insurmountable divisions rooted in geography and history — but also, and perhaps more fundamentally, of centripetal forces toward eventual unity.

This dynamism is not limited to China. The Scottish referendum and waves of secession movements — from Spain's Catalonia to Turkey and Iraq's ethnic Kurds — are working in different directions. More than half a century after World War II triggered a wave of post-colonial nationalism that changed the map of the world, buried nationalism and ethnic identity movements of various forms are challenging the modern idea of the inviolable unity of the nation-state.

Centripetal and Centrifugal Forces at Work in the Nation-State

Yet even as these sentiments pull on the loose threads of nations, in China, one of the most intractable issues in the struggle for unity — the status of Tibet — is poised for a possible reversal, or at least a major adjustment. The long-running but frequently unnoticed negotiations have raised the possibility that the Dalai Lama, Tibet's spiritual leader, may be nearing a deal that would enable him to return to his Tibetan homeland. If it happens, it would end the Dalai Lama's exile in Dharamsala, India — an exile that began after the Tibetan uprising in 1959, nine years after the People's Republic of China annexed Tibet. More important, a settlement between Beijing and the Dalai Lama could be a major step in lessening the physical and psychological estrangement between the Chinese heartland and the Tibetan Plateau.
Tibet, the Dalai Lama and Self-Determination

The very existence of the Tibetan issue bespeaks several overlapping themes of Chinese geopolitics. Most fundamentally, it must be understood in the context of China's struggle to integrate and extend control over the often impassable but strategically significant borderlands militarily and demographically. These borderlands, stretching from northeast to the southwest — Manchuria, Mongolian Plateau, Xinjiang, Tibet and the Yunnan Plateau — form a shield, both containing and protecting a unified Han core from overland invasion. In attempting to integrate these regions, however, China confronts the very nature of geographic disintegration and the ethnic identities in these restive borderlands, which have sought to resist, separate or drift away from China at times when weak central power has diminished the coherence of China's interior.

Tibet in many ways represents the extreme edge of this pattern. Indeed, while the formidable geography of the Tibetan Plateau (its altitude averages 4.5 kilometers, or almost 2.8 miles, above sea level) largely inured it from most frontier threats to the Han core compared with the more accessible Manchuria, Mongolian Plateau or Xinjiang. Perhaps no borderland is as fraught with as much consequence as Tibet under China's contemporary geopolitical circumstances. The Tibetan Plateau and its environs constitute roughly one-quarter of the Chinese landmass and are a major source of freshwater for China, the Indian subcontinent and mainland Southeast Asia. The high mountains of the Himalayas make a natural buffer for the Chinese heartland and shape the complex geopolitical relationship between China and India.

Historically, China's engagement with the Tibetan Plateau has been lacking and not characterized by national unity. Starting in the 7th century, China made sporadic attempts to extend its reach into the Tibetan Plateau, but it wasn't until the Qing dynasty that the empire made a substantial effort to gain authority over Tibetan cultural and social structures through control of Tibetan Buddhist institutions. The weakening of China after the Qing dynasty led peripheral states, including Tibet, to slip from Chinese central rule.

Since the People's Republic of China began ruling over Tibet in 1950, the perennial struggle manifested as political, religious and psychological estrangement between political power in Beijing and the Dalai Lama, the charismatic political and spiritual symbol of the Tibetan self-determination movement, who consistently has resisted China's full domination over Tibet. Here, the nominally impersonal process of geopolitics confronts the rare individual who has a lasting impact. The Dalai Lama has concentrated the Tibetan cause into himself and his image. It is the Dalai Lama who represents the Tibetan identity in foreign capitals and holds a fractious Tibetan movement together, holding sway over both indigenous Tibetans in the homeland and the old and new generations of Tibetan exiles.
Perennial Struggle and Contemporary Moves

Under the People's Republic, China has some of the clearest physical control and central authority over one of the largest and most secure states in China's dynastic history. However, the ancient compulsion to secure the Chinese periphery did not go unaddressed by China's Communist leadership.

Over the years, the central government has pushed aggressively to bolster Han Chinese economic and demographic dominance over the borderland while attempting to overcome the physical barriers of distance through grandiose infrastructure projects, including road and rail links. And yet, the estrangement with the Dalai Lama has left Beijing dealing with the perception that its control over the Tibetan Plateau is partial and of questionable legitimacy. Meanwhile, the Dalai Lama's international prestige exposed the central power in Beijing to numerous international critics. Moreover, it offered New Delhi an opportunity to exploit Beijing's concerns by hosting the Dalai Lama and the Tibetan government-in-exile.

Beijing sees no space to allow the autonomy demanded by the Tibetan exile movement; it is a short path from robust autonomy to direct challenge. Beijing's strategy has been to try to undermine the Dalai Lama's international prestige, constrain interaction between the exile community and Tibetans at home and hope that when the spiritual leader dies, the absence of his strong personality will leave the Tibetan movement without a center and without someone who can draw the international attention the Dalai Lama does. Central to Beijing's calculation is interference in the succession process whereby Beijing claims the right to designate the Dalai Lama's religious successor and, in doing so, exploit sectarian and factional divisions within Tibetan Buddhism. Beijing insists the reincarnation process must follow the Tibetan religious tradition since the Qing dynasty, meaning that it must occur within Tibetan territory and with the central government's endorsement, a process that highlights Tibet's position as a part of China, not an independent entity.

Beijing's plan could work, but the cost would be high. Without recognition from the Dalai Lama, Beijing's appointed successor — and by extension, Beijing's authority in Tibet — can hardly be accepted by the wider Tibetan community. To resist Beijing's attempt at interference, the Dalai Lama has in recent years made various statements signaling that the ancient traditions of the succession process could break. In particular, the Dalai Lama has discussed the potential for succession through emanation rather than reincarnation. This would place his knowledge and authority in several individuals, each with a part of his spiritual legacy, but none as the single heir. Emanation can occur while the Dalai Lama is alive, thus giving him the ability to manage a transition. He has also mentioned the possibility that no successor will be named — that the reincarnation of the Dalai Lama will end, leaving his legacy as the lasting focus for Tibetans.

More concretely, the Dalai Lama has split the role of spiritual and political leadership of the Tibetan movement, nominally giving up the latter while retaining the former. In doing so, he is attempting to create a sense of continuity to the Tibetan movement even though his spiritual successor has not been identified. However, it also separates the Dalai Lama from any Tibetan political movement, theoretically making it easier for the spiritual leader and Beijing to come to an accord about his possible return as a spiritual — but not political — leader. But the maneuvering by the Dalai Lama reflects a deeper reality. The Tibetan movement is not homogenous. Tibetan Buddhism has several schools that remain in fragile coordination out of respect for the Dalai Lama. The Tibetan political movement is also fragmented, with the younger foreign-born Tibetans often more strongly pressing for independence for Tibet, while the older exiles take a more moderate tone and call for more autonomy. The peaceful path promoted by the Dalai Lama is respected, but not guaranteed forever, by the younger and more radical elements of the Tibetan movement, which have only temporarily renounced the use of violence to achieve their political goals.

The future of the Tibetan movement after the Dalai Lama's death is uncertain. At a minimum, the spiritual leader's fame means no successor will be able to exercise the same degree of influence or maintain internal coherence as he has done. Just as the Dalai Lama was concerned that an extremist wing of the new Tibetan generation would undermine his moderate ideology and dilute the movement's legitimacy, Beijing fears that the post-Dalai Lama era would enable multiple radical, separatist or even militant movements to proliferate, leaving Beijing in a much more difficult position and potentially facing a greater security threat.

Beijing and the Dalai Lama have shown a willingness to reach a political settlement in the past, but their attempts failed. As uncertainties loom for both sides amid concerns about the spiritual leader's age and the changing domestic dynamics facing China's new president, Xi Jinping, both sides could see a departure from previous hostilities as a reasonable step toward a low-cost settlement. In other words, both Beijing and the Dalai Lama — and by extension his mainstream followers — understand how little time they have and how, without a resolution, the uncertainties surrounding the Tibet issue could become permanent after the spiritual leader's death.
Optimism Now, but Caution Ahead

The report of the Dalai Lama's possible return to Tibet comes as Beijing has resumed talks with representatives of the spiritual leader. This round of negotiations comes after nine rounds of failed talks over the past decade and four years after the last attempt. Nonetheless, the mood appears at least somewhat optimistic on both sides. In recent weeks, the Dalai Lama has offered conciliatory comments about Xi and intimated that he could be open to returning to Tibet, a longstanding desire of the 79-year-old spiritual leader. For its part, Beijing has released some Tibetan political prisoners and reportedly allowed the Dalai Lama's image and words to be used in certain Tibetan regions after years of prohibition.

Of course, many uncertainties surround the return of the Dalai Lama; it is even uncertain whether it could happen at all. Indeed, overcoming 55 years of hostile relations takes enormous effort, and even if the Dalai Lama is allowed to return to Tibet, it is only one of several steps in much broader negotiations between Beijing and the Tibetan exile community over how to reach a resolution, including the possible resettlement of 200,000 Tibetans in exile, the status of the government-in-exile, the authority of the Dalai Lama and, ultimately, the succession process for the spiritual leader.

Over the years, the Dalai Lama repeatedly has expressed a strong desire to return to the Tibetan homeland, seeing it as an end goal in his longstanding efforts to gain Tibetan autonomy. Although Beijing had always left the option open, it repeatedly emphasized that any dialogue with the Dalai Lama would be confined to the scope of an arrangement for the spiritual leader and would carry no political implications. In other words, any agreement will be based on the premise that expanded Tibetan autonomy is not an option and that Beijing's authority over Tibetan regions — and by extension, the borderland in Xinjiang and Inner Mongolia — will remain intact. Similarly, the Dalai Lama will not accept a weakening of his spiritual authority among the Tibetan community or of his role in choosing successors. Nonetheless, with Beijing's concern over the proliferation of radical wings of the Tibetan movement abroad, allowing the Dalai Lama to return to Tibet could mitigate some of the tension and give Beijing a way to divide and weaken the Tibetan movement.

In moving toward an agreement, both sides would have to prepare for some political risk. For Beijing, the foremost concern would be managing the enormous religious influence of the Dalai Lama at home, where he is seen as a challenger to the Communist Party's political leadership. For the Dalai Lama, the main concerns would be managing the role of the Tibetan political leadership overseas and the potential repercussions within the exile movement from the developing settlement's contrast with their goal for Tibetan autonomy.

Perhaps more important, even if there were signs of a resolution developing, the succession issue is likely to be a roadblock. Beijing is unlikely to give any concession in its authority to appoint a reincarnated spiritual leader, and the Dalai Lama shows little intention of allowing Beijing's unilateral move.

Confronting a Geopolitical Curse

Despite various uncertainties, questions and risks, the potential ramifications of even the slim possibility of rapprochement illustrate China's ancient geopolitical dynamism at work.


Again illustrating how an individual can play a role in geopolitics, the potential for reconciliation between Beijing and the Dalai Lama could affect the balance between China and India. China has long viewed India's decision to host the Tibetan government-in-exile as a hostile gesture. However, India's ability to exploit China's concerns about Tibet has diminished along with the government-in-exile's influence and claim to represent Tibet as a legitimate entity. Already, New Delhi has shown waning enthusiasm for accepting Tibetan refugees and greater concern that the internal fragmentation of the Tibetan community will make hosting the exile community more of a liability than a benefit. However, a settlement would not eliminate the underlying geopolitical rivalry between India and China on other fronts — from their 4,000-kilometer land border to the maritime competitions in the Indian Ocean and South China Sea and their competition for energy and other resources.

Even if a settlement on the Tibet issue emerges in the distant future, it does not mean the end of the China-Tibet struggle. Indeed, since 2009 there have been many Tibetan self-immolations, and Beijing's economic developments in many parts of the ethnic borderlands widely are perceived as flawed or incomplete. Quite likely, a detente with the Dalai Lama will result in radicalized and more extremist elements emerging overseas, seeking self-determination and, like many of their counterparts around the world — from Scotland to the Kurds in the Middle East — challenging the centripetal forces of nation-states.

Historically, when Han China is strong, so is its control over these buffer regions. Control of the buffer regions, in turn, is a key precondition for a strong and secure Han China. This arrangement will become crucial as Beijing grapples with the potential challenges in the social, economic and political transformation in the Han core in the coming years. Therefore, despite the flux mentioned in the aphorism from Romance of the Three Kingdoms, for Beijing the ultimate goal is to confront an ancient geopolitical curse by cementing its control over its borderlands and uniting China permanently and irreversibly, however unrealistic this goal might be.

Editor's Note: Writing in George Friedman's stead this week is Stratfor Asia-Pacific Analyst Zhixing Zhang.

Read more: Centripetal and Centrifugal Forces at Work in the Nation-State | Stratfor
Follow us: @stratfor on Twitter | Stratfor on Facebook

[Crafty_Dog]

http://www.youngresearch.com/researchandanalysis/commodities-researchandanalysis/china/?awt_l=PWy8k&awt_m=3Z.aLq_6Izzlu1V

[ccp]

Are these leaks being done with "inside" help?   Must be:

http://freebeacon.com/national-security/nsa-details-chinese-cyber-theft-of-f-35-military-secrets/

[Crafty_Dog]

I have often spoken of Chinese demographic issues , , ,


http://blogs.wsj.com/chinarealtime/2015/03/10/china-sets-timeline-for-first-change-to-retirement-age-since-1950s/?mod=WSJBlog&mod=chinablog

[Crafty_Dog]

A modest pickup in China’s consumer inflation in February has failed to ease concerns among economists over China’s deflation risks. On the factory side, China now has seen industrial deflation for three full years, meaning manufacturers can’t raise prices and will have a difficult time justifying hiring and investment. Policy makers still need to further ease policy to head off deflation risks, many economists say.

The consumer price index, a major gauge of inflation, was up 1.4% from a year ago in February compared with January’s 0.8% increase, a five-year low. The rebound in February’s CPI was mainly due to a faster increase in food prices during the Lunar New Year holiday.

The producer price index, which measures prices at the factory gate, slid 4.8% from a year ago, worsening from January’s 4.3% drop and marking three full years of declines. It was also the biggest fall in the PPI since October 2009.

[Crafty_Dog]

 China's Debt Crisis: Addressing the Problem but Missing the Mark
Analysis
May 15, 2015 | 09:15 GMT
Print
Text Size
A Chinese commuter rides past the CCTV office in the Central Business District in Beijing. (AFP PHOTO/Mark RALSTON)
Analysis
Forecast

    China is granting local governments greater autonomy by allowing them to swap up to $160 billion in outstanding loans for lower-interest, slow-maturing government bonds.
    The program will provide a crucial buffer against local government debt crises in 2015 and beyond.
    The initiative may reduce economic stress in the near term but fails to address the largest contributor to China's crisis: corporate debt.

A significant evolution is underway in how China manages its rising levels of local government debt. On May 14, the Chinese government announced that by September, it would complete the first phase of a new plan that allows local governments to swap outstanding loans for low-yield, slow-maturing local bonds. Under the plan, localities would have a steady and stable repayment path for the more than $3 trillion in local government debt accumulated during the past six years of rapid, post-financial crisis spending. It will also have the added benefit, Beijing hopes, of lowering local government debt-servicing costs, thus freeing up tens of billions of yuan in liquidity in the short run. For now, local governments will be able to exchange only a small portion of outstanding loans (about $160 billion) for local bonds, but if successful, the program will likely expand substantially in the years to come.

The debt swap plan comes at a crucial time for China's economy. In recent years, the country's slowing growth rate has steadily eroded the local governments' abilities to service outstanding debts, much less sustain the level of investment needed to keep the economy humming. By allowing localities to swap 50 percent or more of maturing outstanding debts this year, the new plan will provide a much-needed buffer against local government debt crises in the near term — and beyond, if the program expands as Beijing intends. Although the plan is a welcome departure from the Chinese government's previous ad hoc methods of managing local government debt maturation, it fails to address the most pressing problem: outstanding corporate debt.

At the end of 2014, Chinese businesses owed more than $16 trillion, accounting for 61 percent of China's total outstanding debt and equal to nearly 180 percent of the country's gross domestic product. That compares with $3.38 trillion owed by local government financing vehicles (LGFVs), the means through which local governments raise virtually all of their cash.

Local Bonds

The idea of allowing local governments to issue their own bonds is not new to China. Until recently, central government leaders consistently rejected the idea of granting localities greater autonomy. For most of the 2000s, the central government opted to keep virtually all financing under the control of a handful of major state-owned commercial banks and their local affiliates. When the global financial crisis forced Beijing to rapidly ramp up spending and investment after 2008, the central government refused to allow localities to issue their own debt and created a legal framework for LGFVs to operate and draw capital from state-owned banks, ultimately falling under the central government's control.

In 2008, when the country was facing a potentially destabilizing economic crisis, the decision to bind local government finances to the state-owned banking system via LGFVs was reasonable. Beijing was worried that economic imbalances between coastal and inland provinces could fuel political instability and fragmentation. From the vantage of 2008, LGFVs seemed to provide the central government a means to dramatically expand local governments' spending capacity — local governments cover 85-90 percent of all government expenditures, including for infrastructure development and social services — while retaining a degree of control over how and when that money was spent.

This state-controlled strategy, however, began to break down after 2010, when Beijing attempted to ease lending to LGFVs. The decrease in loans from state-owned banks resulted in the creation of "shadow lending" tools thanks to a persistent demand from businesses and LGFVs. By 2013-2014, shadow lending — some of it in the form of off-balance sheet lending by state-owned banks themselves — accounted for an uncomfortably large share of China's total outstanding debt and new credit creation. The new economic reality forced the central government to clamp down and correct the growing reliance on shadow lending, a process that partly explains the timing of the start of China's real estate and broader economic slowdowns in early 2014.

Even in the face of declining economic growth, Beijing is loath to reverse the trend. For one, the slowdown — and the reform and restructuring it implies — is a crucial step on the path to rebalancing China toward an economic growth model grounded in private consumption, high value-added manufacturing and services. More to the point, the sheer scale of outstanding credit and industrial overcapacity, combined with the rapid deterioration in credit's return on investment, means that reversing the current decline would require unsustainable levels of new spending. With little option but to allow the economy to falter, the Chinese government has instead turned its focus to managing the slowdown. Enabling local governments to repay their old debts while maintaining a baseline of spending is central to this effort.

Enter the new debt swap program. By exchanging higher-interest, fast-maturing loans for low-interest, slow-maturing bonds, Beijing aims to prolong but soften the pain of repaying those debts and free more cash for local governments to spend in the near term. In short, Beijing hopes that this new process of gradually granting autonomy to the local governments will cut down on a number of entrenched problems and force the localities to think more carefully about how they spend their money going forward. The simple fact that Beijing is proceeding with the creation of local bond markets suggests that the central government understands it no longer has any choice but to allow greater local fiscal autonomy. It is no coincidence that this process coincides with a sharp consolidation of the central leadership's powers in other spheres of Chinese political and economic life. China's leaders are aware that the country is moving toward a consumption-driven economic growth model. To mitigate future challenges posed by this transition, the government is moving rapidly to ensure maximum control over central party, government and security apparatuses.
The Elephant in the Room

The debt swap program has gotten off to a somewhat choppy start. In late April, Jiangsu province delayed an 81 billion-yuan ($13 billion) bond issuance, likely because of a lack of interest among commercial banks in purchasing the low-yield, slow-maturing securities. In response, the central government allowed commercial banks to use bonds bought from local governments as collateral for low-cost loans from the central bank, thus offsetting the impact of swapping higher-interest loans for low-interest local bonds on commercial banks' balance sheets. As the program expands, bonds will become an increasingly viable alternative financing route, and the room for error will grow. In the near term, local government debt defaults remain a real risk, especially in areas where growth is slowing the most and LGFV reliance on shadow lending is highest. But the debt swap program provides a viable and likely stable blueprint for metabolizing the debts accumulated by local governments over the past decade or so.

However, this plan does not address the larger and more pressing issue of corporate debt, and no comparable plan for managing corporate debt exists. The corporate debt is more than four times the size of local government debt and is also that which sustains the vast majority of employment in China. For the time being, Beijing seems to be counting on the ability of service industries and agriculture, with financial help from the banking sector, to absorb the employment leftover from industrial consolidation — both government-driven and economically induced — and corporate closures. As the slowdown continues, the rate and scale of corporate debt crises is likely to grow substantially. Unemployment among manual laborers and manufacturing is also expected to grow. Although a plan to improve local government solvency and boost local governments' liquidity could provide a buffer against social and political instability in the near term, the corporate debt must be addressed and eased to ensure China's long-term prosperity.

[G M]

If only our debt crisis were so manageable.

[Crafty_Dog]

By
Te-Ping Chen
May 18, 2015 4:54 a.m. ET
WSJ

BEIJING—An environmental dispute involving a stone quarry in southeastern China marks the first test of a new Beijing effort to use the courts to help clean up the country’s massive pollution problems.

In a lawsuit that began trial on Friday in a court in China’s southeastern Fujian province, environmental groups accused four mine operators of stripping a mountainous area of trees and causing about two hectares’ worth of damage. They are suing the defendants to either restore the area themselves or pay 1.1 million yuan ($177,000) for a third party to do so. For their part, the defendants have said that the group doesn’t have the right to sue and disputed the sum requested, saying that the way it was calculated was flawed. They also said the damage caused wasn’t intentional.

Experts say the case, brought by environmental groups Friends of the Earth and Fujian Green Home, is the country’s first public-interest suit lodged under its new environmental law. Revised for the first time since 1989, the revamped environmental law came into effect in January and gave nonprofit groups greater ability to sue on behalf of the public for environmental damages.

While Chinese official statistics show that regulators have pursued more criminal cases against alleged polluters, experts say private lawsuits haven’t yet caught up. To help private citizens, separate new rules that went into effect in May have made filing private lawsuits easier. Already, a Chinese court earlier this month accepted a series of suits from tourism groups seeking 40 million yuan in damages from ConocoPhillips over alleged damages from the 2011 Bohai Bay oil spill in the waters off northeastern China. ConocoPhillips didn’t respond to a request for comment.

The test in the case in Fujian is whether more nonprofit groups will be encouraged to make use of the new rules enacted in January despite remaining hurdles that include high fees and lack of experienced legal personnel. “Just because a group is qualified to sue doesn’t mean they have the ability to bring a suit, much less that they have that aspiration,” said environmental lawyer Xia Jun. “The law can’t force people to sue.”

In 2014, the number of criminal actions related to the environment totaled about 16,000 cases, according to a government judicial work report released in March. The official news agency Xinhua said that marked a rise of more than eight times from 2013. The number of civil cases involving damages from pollution rose by 51% to 3,331, the agency said, though Zhang Bao of the Central South University School of Law said that the numbers have fluctuated in recent years without an obvious increase.

Prior to the new environmental law, courts rarely accepted environmental suits brought by nonprofits. Even when government-backed groups such as the All-China Environment Federation brought suits, they faced serious barriers. In 2013, the federation attempted to lodge eight cases, and all were rejected by the courts, it said.

Since the new law went into effect in January, the number of cases accepted by the courts on environmental issues has remained in the single digits, environmentalists say. In part, that is because few nonprofits have been trying, said Wang Canfa, founder of the Center for Legal Assistance to Pollution Victims. “Before, some expected that there’d be a great surge in cases. In fact, that didn’t happen,” he said.

The new law requires nonprofits to have worked in the environmental sector for five years and to be registered with the government. According to the government, several hundred nonprofits are eligible to bring suits under the new law.

Bringing a case can rack up thousands of dollars in legal bills—a challenge in a climate in which nonprofits’ ability to fundraise is already strictly curtailed. Courts often require plaintiffs to hire independent bodies to help appraise the monetary value of the environmental damage claimed, compounding the expense. The number of nonprofits with the interest and ability to bring such suits, said Mr. Xia, the environmental lawyer, is “pitifully small.”

A traditional Chinese reluctance to bring lawsuits is also a factor, says Ge Feng of Friends of Nature. The group recently set up a 300,000 yuan legal fund backed by the Alibaba Foundation, which was founded by e-commerce giant Alibaba Group Holding Ltd. , to help support lawsuits.

Lawyers said they were cautiously optimistic about the outcome of the case in Fujian, saying that several of the individuals being sued had already been sentenced to prison stints of about a year.

In addition to empowering nonprofits to sue polluters, the government has also set up hundreds of environmental courts specializing in the issue across the country in recent years. Many environmental courts have languished, though, with some judges even transferred to assist with regular cases due to their low caseload, lawyers say.

—Lilian Lin contributed to this article.

Write to Te-Ping Chen at te-ping.chen@wsj.com

[Crafty_Dog]

Share
The Grand Design of China's New Trade Routes
Analysis
June 24, 2015 | 09:15 GMT

    Over the next several years, China will devote significant resources to the construction of Eurasian trade routes under its Belt and Road Initiative.
    As transit routes come online, the proportion of Chinese maritime trade passing through South China Sea chokepoints will shrink.
    The new infrastructure built as part of the Belt and Road Initiative will support China's economic rebalancing by opening new markets, generating demand for higher value-added Chinese goods and helping China build globally competitive industries.
    Improving transit routes will lead to new security and political risks, and China's efforts to mitigate these threats could create frictions in the very areas where Beijing is trying to diversify its trade routes.

In 2013, China's President Xi Jinping proposed a plan to stimulate development in Eurasia by constructing what he called the Silk Road Economic Belt and the 21st Century Maritime Silk Road — revivals of the overland and maritime trade routes that once connected China and Europe. Since then, the "Belt and Road Initiative" has become a fixture in official Chinese discussions on both foreign and domestic policy. Nonetheless, the initiative is still loosely defined. Beijing claims there are about 60 Belt and Road countries, but there is no public listing of these countries. Although the initiative clearly centers on infrastructure investment, Chinese media coverage offers no straightforward definition of what projects count as part of the program. A pledge to install signs and information kiosks in Armenia is said to be under the banner of the Belt and Road Initiative, as is a $46 billion infrastructure investment package that Xi promised to Pakistan in April.

This lack of clarity makes it difficult to see what is special about the Belt and Road Initiative. After all, China has long been involved in infrastructure construction across Eurasia. However, with the Belt and Road Initiative, China has for the first time explicitly unified all of its infrastructure investments in Eurasia under a single coordinated plan. The initiative should not be understood as merely as the sum of its infrastructure projects. Rather, it should be seen as a strategy with a clear set of ends, ways and means, to be evaluated on its ability to support China's geopolitical objectives.

The strategy behind the Belt and Road Initiative is to diversify transit lines, thereby mitigating China's vulnerability to external economic disruption and reinvigorating China's slowing economy. China's ideal would be to link its inland cities to global markets with a diversified network of transit routes and energy pipelines, many of which would take inland routes and serve as alternatives to existing sea-lanes. The name of the initiative, "One Belt and One Road," is slightly misleading; this will not be a single overland road coupled with a single maritime route. The initiative envisions six corridors across Eurasia, many of which will mix land and maritime components.

Every project built along these corridors under the Belt and Road Initiative will serve both strategic and economic purposes, though some will prioritize one set of goals over the other. However, the overall orientation of the Belt and Road Initiative will be toward strategic objectives.

Strategic Logic

China's economy is dependent on foreign trade, 90 percent of which travels by sea. China's near seas — the Yellow Sea, the East China Sea and the South China Sea — are bounded by what Chinese strategists call the "First Island Chain," a series of islands (many of which are controlled by U.S. allies) that stretches from Japan to the Philippines to Indonesia. To reach ports on China's eastern coast, seaborne trade from the west must pass through maritime chokepoints such as the Strait of Malacca (through which 82 percent of China's crude oil imports passed in 2013). Passage through these maritime chokepoints is secured by another country: the United States, the world's dominant naval power.

The geographic enclosure of China's near seas would make it relatively easy for an adversary to disrupt or interdict Chinese trade. China faces many challenges in developing the ability to project sufficient naval power to safeguard seaborne trade as it passes through distant chokepoints. Instead, China must rely on the United States to provide security of the sea-lanes. Although maritime security is ostensibly a public good, China worries that, as a potential peer competitor to the United States, it will not always be able to rely on the United States to protect its shipping.

U.S. war planners have certainly not ignored China's geographic vulnerability. A 2015 Department of Defense report to Congress on China mapped out chokepoints for Chinese energy imports, a move unlikely to have gone unnoticed in Beijing. In the case of a war between the United States and China, many U.S. strategists favor imposing a distant blockade of Chinese waters. Although the U.S. Navy has unchallenged supremacy over the open ocean, resource constraints — and the risks posed by China's anti-ship capabilities in its near seas — suggest that U.S. forces would concentrate on blocking the chokepoints.

The Belt and Road Initiative aims to mitigate the risk of maritime interdiction by constructing transit routes along six economic corridors:

    The China-Mongolia-Russia corridor, anchored by the Trans-Siberian railway
    The New Eurasian Land Bridge, anchored by a set of railways running from central China (Wuhan, Chongqing and Chengdu) to Europe via Kazakhstan, Russia and Belarus
    The China-Central Asia-Western Asia Corridor, speculated to follow the overland Silk Road Economic Belt as depicted in maps released last year by the state-owned Xinhua News Agency, passing through Central Asia, Iran and Turkey to reach Europe
    The China-Pakistan Corridor, which would extend the Karakoram Highway, which already crosses the mountains between China and Pakistan, and build highway and rail links all the way through Pakistan to the port of Gwadar
    The Indochina Peninsula Corridor
    The Bangladesh-China-India-Myanmar Corridor

In these corridors, China will enhance existing transportation networks, construct new roadways and build intermodal transport hubs and energy pipelines. Alongside these projects will come investment in attendant infrastructure, including power plants and communications technology such as fiber-optic cables. China will not be starting from scratch — it has already built up a patchwork of infrastructure across Eurasia, and much of the Belt and Road work will simply link existing segments of road and railway.

Two of these corridors, the China-Mongolia-Russia corridor and the New Eurasian Land Bridge, will be entirely overland. They center on existing transcontinental rail lines and mainly focus on delivering relatively high value-added goods, such as electronics, which are sensitive to rapid changes in demand. China will shift a small fraction of its total trade to these routes, providing an outlet for industries in China's interior and giving the country a measure of insurance against naval interdiction.

Recognizing that it can only shift a small amount to inland trade routes, China will continue investing in port infrastructure along other corridors in the Belt and Road Initiative, particularly in the Indian Ocean region. However, China will find ways to link land and maritime routes, aiming to bypass the South China Sea chokepoints and minimize the distance of any single maritime leg of Chinese shipping. For example, the China-Pakistan Corridor could allow some Chinese goods to travel overland to Pakistan before embarking for Europe at the Chinese-constructed port at Gwadar.

The Belt and Road investments will also serve to build political support for China. Many countries along the proposed transportation corridors face huge budget shortfalls in the area of infrastructure development, together totaling trillions of dollars between 2010 and 2020. With its large financial resources, China is well poised to fill some of these gaps. In fact, some of the planned infrastructure projects will have no obvious connection to the development of transit routes. For example, China signed an agreement with Georgia in May to construct 30 greenhouses as well as provide additional agricultural assistance. However, China will be happy to meet these seemingly unrelated demands, both to bring in business for its construction industries and to secure the political support necessary to ensure the safe conduct of Chinese commerce through neighboring countries.
Economic Logic

The strategic value of these corridors will be realized in the long term as the routes become fully linked. Aside from its long-term value as a contingency plan for Chinese trade, the Belt and Road strategy serves China's goal of alleviating its economic slowdown and correcting its internal geographic disparities. By official figures, China's economy is expected to grow at about 7 percent a year, though in reality, growth is likely to become substantially slower. To handle the slowdown, China aims to shift its industry away from the coast to the relatively underdeveloped inland provinces. Meanwhile, it seeks to produce higher value-added goods in coastal regions and expand coastal consumer bases to absorb manufactured goods from the newly industrialized interior.

The Belt and Road Initiative will aid in this process by constructing physical links between China's inland industry and new markets. Belt and Road infrastructure projects may give China a way to offload some of its growing surpluses in construction materials and rural labor. Although it may not be economically or politically feasible to tap into these surpluses for every project, overall the initiative will help alleviate some of China's overcapacity problems.

In addition to building up the "hardware" of infrastructure, China will try to streamline trade by pushing for new customs agreements and unified technical standards. These trade facilitation measures will complement the development of special economic zones and industrial parks along the Belt and Road corridors. Improved transit infrastructure and the elimination of trade barriers could make it cost-effective for China's inland industry to access new markets.

The construction of new roads may stimulate foreign demand for higher value Chinese manufactured goods, such as locomotives and train cars. As China builds up its construction companies, Belt and Road projects will create opportunities for them to gain more international exposure and experience. A higher international profile will enable Chinese industry to build proficiency and compete globally in sectors traditionally dominated by competitors such as Japan's Kawasaki Heavy Industries, South Korea's Samsung Heavy Industries and Germany's Siemens.
Carrying Out the Initiative

The tools China is using to implement Belt and Road expose the political objectives at the very heart of the program. To carry out this vast construction initiative, Beijing is relying on its panoply of state-owned enterprises, which reflects the Belt and Road strategy's orientation toward strategic, rather than solely financial, gain. Although state-owned entities sometimes sacrifice efficiency, they will enable Beijing to exert tighter central control over its projects.

These state-owned enterprises will receive financial backing either directly from Chinese policy banks, such as China Development Bank (which has pledged $890 billion for Belt and Road projects, most likely over the course of several years) and the Export-Import Bank of China, or from infrastructure investment funds such as the Silk Road Fund, which holds $40 billion. Additional money for these investment funds will come from China's foreign exchange reserves and China's sovereign wealth fund, which have $3.7 trillion and $220 billion available respectively. In addition, China will enlist other countries to finance these efforts through multilateral banks such as the Asia Infrastructure Investment Bank, which is scheduled to come online later this year with an initial capital base of $100 billion. China will not be able to devote all of this money to the Belt and Road strategy because of multiple competing demands, but the relative abundance of its financial assets suggests that China can afford to be generous. More Belt and Road-related deals in the $20 billion to $50 billion range will not be unusual or unduly taxing of Chinese resources.
Risks and Challenges Ahead

Although China has ample resources for building up infrastructure in the Belt and Road corridors, serious security and political challenges are likely to arise. Many of the Belt and Road projects, by their very nature of expanding transport links into underdeveloped or conflict-ridden regions, will generate additional security concerns. Construction teams and the infrastructure itself will need protection. To safeguard its interests, China will negotiate for improved host nation security for its projects. For example, Beijing and Islamabad appear to have secured an agreement under which Pakistan will allocate an army division composed of 10,000 troops specifically to protect Chinese workers, many of whom will be working on infrastructure projects in the restive province of Balochistan.

Improved transit links would provide new routes for the illicit movement of goods and people into China itself. China is especially sensitive to these transnational threats because of longstanding problems with separatist militants in its westernmost territory, Xinjiang, a critical node that is also where three of the six Belt and Road corridors exit China. To combat these transnational risks, China will provide assistance for domestic security organizations in countries along the Belt and Road networks. An indication of China's plans is Politburo member and chief of Chinese security Meng Jianzhu's prominent role in promoting law enforcement exchanges under the rubric of the Belt and Road. These exchanges most likely will include enhanced intelligence sharing and could lead to China conducting more joint law enforcement training with its Belt and Road partners. However, powerful regional stakeholders may worry that the expansion in Chinese security cooperation will come at the expense of their interests, especially in Central Asia, where Russia is wary of attempts to challenge its dominant role in regional security. China will need to engage in very active diplomacy to allay fears of displacement, but this will most likely be an uphill battle.

In addition to security hazards, considerable political risks could create difficulties for China's construction projects. Chinese aid could become politicized and draw criticism domestically. In Sri Lanka, Chinese construction on Colombo Port City, a $1.4 billion artificial island, was suspended in January after the election of President Maithripala Sirisena, who accused his predecessor of offering too many concessions to China. Chinese firms involved on the project lost $380,000 per day, and construction was only cleared to resume three months later. Similar localized headaches are likely to occur frequently. More seriously, regional tensions in areas such as Central Asia's Fergana Valley, which crosses the borders of countries that line the China-Central Asia-Western Asia corridor, and political instability within countries like Kazakhstan could present long-term perils for Chinese efforts to implement the Belt and Road strategy.

Ultimately, the geographic scale of the Belt and Road strategy and the complex geopolitics involved mean that China's success in building the six Belt and Road corridors will be highly uneven. Yet, although the Belt and Road strategy will be expensive and face formidable hurdles, the mitigation of trade insecurity will make the project well worth the cost in the eyes of China's leaders. As the transit routes come online, this network will provide several alternatives to the vulnerable sea-lanes through the South China Sea, giving China's economy some insurance against any single point of failure. In an instance of war, the Belt and Road infrastructure would greatly complicate potential U.S. plans to impose a distant blockade. Inland transit routes would naturally be insulated against naval interdiction, and the proliferation of short maritime transit legs would force the U.S. Navy to spread its assets over a large expanse rather than concentrate on a small number of chokepoints. In peacetime, these options would enhance China's political leverage by preventing any individual country from threatening to disrupt China's economic lifelines.

[Crafty_Dog]

My prediction of several years now may now be coming to pass:


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Has China's Stock Market Bubble Burst?
Analysis
June 30, 2015 | 09:00 GMT

Analysis

Forecast:

    In the coming months, the stark disjunction between China's stock market boom and its slowing economy will weigh more heavily on stock performance.
    As the stock market boom inevitably winds down, authorities will struggle to contain financial fires caused by the sharp increase in reliance on margin financing (both formal and "shadow") by stock market investors. The volume of outstanding margin loans is too small to trigger a systemic crisis, but temporary liquidity crunches cannot be ruled out.  The eventual decline of the stock market, combined with the continued slowdown of property markets across China, will leave ordinary Chinese with fewer options for investing their savings.

The Shanghai Composite Index, which tracks the performance of stocks on China's largest exchange, fell 3.3 percent on June 29, compounding a 7.4 percent drop June 26 — the largest single-day decline since 2008, when Chinese stocks were in the midst of a global financial crisis-induced collapse. Days of sustained falls, even as the country's central bank further cut reserve requirement ratios and interest rates, have reduced the Shanghai exchange more than 21 percent from its June 12 peak, officially making it a bear market. It is unclear whether the fall will continue or, as has happened several times in recent months, whether it will stabilize or even reverse itself in the weeks ahead. But the sharp declines over past weeks cast a spotlight on the increasingly glaring gap between China's buoyant equities and the reality of its continued, and in many ways deepening, economic slowdown.

There was an extraordinary boom in Chinese stocks over the past year. In the 12 months since June 2014, when the boom began, the combined market capitalization of the Shanghai and Shenzhen exchanges rose more than 140 percent. Since early May alone, more than 5 million new investors, most of them ordinary Chinese, have entered the market, bringing the total number of investors to 90 million. Over the past five months, total assets under management at China's mutual funds have nearly doubled, from $720 billion to over $1.2 trillion. In November 2014, China overtook Japan as the world's second largest stock market, with a market capitalization of $4.5 trillion. Today, its stocks have an estimated value of around $9 trillion, roughly equivalent to the country's gross domestic product.

Strikingly, however, this dramatic growth has taken place against a backdrop of steady declines across most major indicators in the economy at large. Industrial profits fell 1.4 percent in the first four months of the year, while those across the state-owned sector — which enjoys disproportionately high representation on China's largest stock exchange, in Shanghai — collapsed by nearly 25 percent. Profits are rising among private sector businesses, but at 6.1 percent in the January-April period, their annual growth pales in comparison to concurrent gains in the Shenzhen index, on which private enterprises are better represented. At the same time, growth in fixed-asset investments, which account for nearly 50 percent of China's GDP, has fallen to its slowest pace since the global financial crisis, and housing construction-related spending — by far the largest component of fixed asset investment — is growing at roughly one-third the pace of a year ago. To be sure, home prices and sales have seen a modest rebound in top-tier markets in recent weeks. And services, high-tech and consumption-related industries continue to grow at a stable rate. But these gains are far from sufficient to support nationwide GDP growth at the government's 7 percent annual target, let alone to explain the stupendous performance of China's equity markets in recent months.

A confluence of factors accounts for the sharp growth in Chinese equity markets over the past 12 months. Excitement over China's nascent high-tech sector, along with strong growth in consumption and services industries, has undoubtedly contributed to the boom. But these factors alone do not fully account for the rapidity and scale of gains made across the board on both of China's leading exchanges, nor for its coincidence with slower growth across most of the country's industrial sector. Rather, the current stock market boom must be understood in relation to two other factors: China's regime of strict capital controls and the decline, starting in March 2014, of the real estate sector.

Expansion in China's Stock Markets

A defining feature of China's financial and economic development over the past three decades has been the government's tight control over the flow of capital in and out of the country. For most of the Reform and Opening period, individual Chinese were prohibited from investing overseas. This has changed somewhat in recent years, in part in an effort to better regulate cross-border capital flows and to combat illicit capital flight. But even today, the vast majority of overseas Chinese investment comes from state-owned enterprises and high net-worth individuals, many of them Party officials or affiliates. Ordinary Chinese by and large are barred from parking their capital and seeking returns beyond China's borders.

Domestically, partially by design and partially because of a lack of financial depth (a legacy of the Mao era, during which securities were outlawed), ordinary Chinese have traditionally had few avenues for investing their savings. Until the late 1980s, they had two options: to deposit savings in state-owned banks, where returns consistently trailed inflation, or to keep them under their mattresses, where returns were even worse. The reason for this arrangement was simple: decades of self-isolation from global trade and financial markets made China in the 1980s an extremely capital-poor economy. And since the government owned the economy, and thus bore sole responsibility for raising and investing funds, it had to ensure it could capture as much of the population's wealth as possible. The easiest way to do this was to give ordinary Chinese no choice but to put their savings in state-owned banks.

China's earliest stock exchanges emerged organically in the late 1980s in cities like Shenzhen and Chengdu in an environment of extraordinary (and short-lived) political openness, rapid growth in private sector industry (which for the most part lacked access to state-controlled funds), and rising demand for higher returns from a population getting its first taste of capitalism in decades. By the early 1990s, however, these earlier exchanges had largely been co-opted by the state and transformed into a nationwide platform — with the newly created Shanghai exchange at its center — for raising capital for the state sector. Ordinary Chinese seeking new places to invest their savings cared little whether the exchanges targeted smaller private firms (as the original Shenzhen exchange did) or larger state-owned firms (as Shanghai, which became the model for other markets nationwide, did), so long as the returns were potentially greater than what might be earned on a commercial bank deposit.

This process coincided with the creation and expansion of commercial urban real estate markets in the mid-1990s, which provided another opportunity for ordinary Chinese to invest their savings. For a combination of social, cultural and policy reasons, and in part because of the lack of transparency and high volatility in China's increasingly state-centric stock markets, the development of the commercial real estate sector vastly outpaced that of stock markets in the 1990s and early 2000s. Stocks were a useful additional means of channeling the population's wealth into state entities, but they were not critical to the state's financing efforts. Indeed, in some ways the development of the stock market threatened Beijing's interests because the more deposits that were redirected to stocks, the less that went to banks' coffers. State-owned enterprises continued to rely primarily on banks for funding, and banks relied on consumer deposits.

The current expansion in China's stock markets is by no means the first, nor even the biggest, since official exchanges were opened in 1990, but it is in many ways the most significant. It comes amid the slowdown of China's decade-plus real estate boom and at a time when ever more Chinese seek means to protect and grow their savings. For the past 10-15 years, and especially since 2008, real estate has been not only the single most important industry in China but also by far the leading investment destination for ordinary Chinese seeking high returns on their savings. This speculative investment activity, much of it fueled by state-backed credit, sustained the extraordinary proliferation of housing markets across the country, and in doing so played a crucial role in maintaining high rates of employment and social stability in the wake of the global financial crisis.


While China's property sector was booming, ordinary Chinese had comparatively little incentive to invest in the stock market. In the 2000s, China's exchanges became notorious for their dysfunction and volatility because of lack of transparency and poor oversight of the initial public offering process. By 2006-2007, the last major boom period, they had come to be viewed by most ordinary Chinese as akin to the lottery — a far cry from property, which generated seemingly never-ending profits and had the benefit of being a fixed asset. Over the past several years, however, the government has gradually introduced a number of reforms aimed at professionalizing the country's biggest exchanges, including reforming the initial public offering process, strengthening the national securities regulator, and slowly opening Chinese stocks to Hong Kong and international investors.

The redevelopment of China's stock markets coincided with the slowing of China's housing market, and this convergence — combined with the proliferation of communications technologies that allow far more people to connect to markets than ever before — has underpinned the rapid growth of the Shanghai and Shenzhen exchanges over the past 12 months. In short, with real estate no longer capable of providing the returns it once did, ordinary Chinese have turned to stocks. For Beijing, this is in many ways a welcome development. As long as the market remains buoyant, it is providing a much-needed source of financing to thousands of Chinese companies, both state-owned and private, at a time when the government is working desperately to curb the economy's dependence on state-backed credit. At the same time, insofar as it allows ordinary Chinese to expand their wealth, it can be a useful tool of social management at a time of slowing growth, heightened concern over local government and corporate debt risks, and increased political uncertainty.
Growing Risks

But as has become clear in recent weeks, China's stock markets are increasingly vulnerable to the sort of debt-fueled speculative activity that drove the country's housing boom into bubble territory and that has made the process of deflating that bubble so treacherous both economically and politically. One key difference between the ongoing boom and that of 2006-2007 is the emergence of margin financing, or loans used to invest in stocks. Before 2010, China had no formal channels for individual investors to take out loans for investment in the stock market. Certainly margin loan-like tools existed, but on a highly informal and ad hoc basis, disconnected from the state-owned banking sector and thus posing little threat to national financial stability. When the market crashed in 2008, it wiped out the personal savings of many millions of investors, but the lack of leverage minimized the risk of financial contagion.

There has been a remarkable surge in margin financing over the past five months, both formal and informal. Since January, the value of outstanding margin loans has doubled to roughly $350 billion. Informal margin financing has an estimated value of between $80 billion and $160 billion. Though small compared to the total value of China's stock market or assets in the state-owned banking sector, the surge in margin financing both formal and shadow raises the risk of a liquidity crunch — and possibly wider financial contagion — if and when the market does enter into terminal decline. In recent weeks, the government has moved to limit banks' exposure to margin loans by raising the minimum assets required to qualify for margin financing and creating a program to facilitate the rollover of margin loans. But these measures, like policies intended to cool China's housing market by tightening the flow of bank credit in years past, could have the side effect of driving up demand for informal sources of margin financing.

One outstanding question raised by the fall in stock prices during the week leading up to June 26 is what new investment avenues may emerge if and when the current stock market boom does come to an end. The massive oversupply in China's housing sector makes a significant, sustained recovery in real estate markets beyond a handful of top-tier cities highly unlikely in the next 6-12 months and possibly for years to come. But with capital controls still largely in place and with the government likely to proceed slowly with efforts to liberalize interest rates on bank deposits, it is unclear what other high-return options exist for ordinary and wealthy Chinese alike, not to mention for China's growing industry of institutional investors such as mutual funds. China's population is increasingly attuned to the benefits of investing, and as the economic slowdown begins leading to unemployment in many regions over the coming months, it will be increasingly dependent on it. But Beijing will struggle to provide its populace with new investment opportunities.

[Crafty_Dog]

second post

A Scientific Ethical Divide Between China and West

By DIDI KIRSTEN TATLOWJUNE 29, 2015
Photo
Huso Yi, the director of research at the Chinese University of Hong Kong Center for Bioethics, said of China’s gene modification work, “The consensus among the scientific community is, ‘not for now.’ ” Credit Billy H.C. Kwok for The New York Times


BEIJING — China is spending hundreds of billions of dollars annually in an effort to become a leader in biomedical research, building scores of laboratories and training thousands of scientists.

But the rush to the front ranks of science may come at a price: Some experts worry that medical researchers in China are stepping over ethical boundaries long accepted in the West.

Scientists around the world were shocked in April when a team led by Huang Junjiu, 34, at Sun Yat-sen University in Guangzhou, published the results of an experiment in editing the genes of human embryos.

The technology, called Crispr-Cas9, may one day be used to eradicate inheritable illnesses. But in theory, it also could be used to change such traits as eye color or intelligence, and to ensure that the changes are passed on to future generations.


Dr. Huang and his colleagues tried to modify a gene that causes a blood disorder called beta-thalassemia. The experiment failed in 85 embryos. Even so, to many in global science, it was a line that should not have been crossed.

Scientists in the West generally abjure this sort of research on the grounds that it amounts to genetic engineering of humans. In any event, the technology is still in the earliest stages of development.

“The consensus among the scientific community is, ‘not for now,’ ” said Huso Yi, the director of research at the Chinese University of Hong Kong Center for Bioethics.

Yet Chinese scientists seem in no mood to wait.

“I don’t think China wants to take a moratorium,” Mr. Yi said. “People are saying they can’t stop the train of mainland Chinese genetics because it’s going too fast.”

China is quickly building infrastructure for scientific research.

In 2013, the last year for which statistics are available, the state invested more than 1.18 trillion renminbi, or $190 billion, which is more than 2 percent of its gross domestic product, in “the development of scientific research and experimentation,” according to China’s National Bureau of Statistics.

In 2011, the state invested about $140 billion, or 1.84 percent of its G.D.P., the bureau said.

“The gap between China’s new bioscience technologies and that of the West is closing,” said Zhai Xiaomei, a member of the country’s National Medical Ethical Committee and a professor at Peking Union Medical College.

But the research juggernaut is gathering momentum in a country where training in ethics for scientists was introduced, under pressure from the West, only a dozen years ago.

“The ‘red line’ in the West and in China are not too similar,” Deng Rui, a medical ethicist at Shanxi Medical University, said in a telephone interview. “Ethics are a question of culture, and that is about tradition, especially where it touches on human life.”

“Confucian thinking says that someone becomes a person after they are born. That is different from the United States or other countries with a Christian influence, where because of religion they may feel research on embryos is not O.K.”

The state does set limits, Ms. Deng said: “Our ‘red line’ here is that you can only experiment on embryos that are younger than 14 days old.”

The proscription is contained in a document issued by the health and science ministries in 2003. It now urgently needs updating, she said.  Chinese scientists adhere to globally accepted ethical and scientific norms, said Ms. Zhai, the medical ethics committee member.  But many scientists experience pressure not to do so, she acknowledged.

“Inside China, there are people who are opposed to international standards, citing cultural differences,” Ms. Zhai said. “This force is actually quite powerful sometimes.”


In the case of Dr. Huang’s experiment, the national committee decided that it was ethically acceptable because it “was not for reproductive purposes,” Ms. Zhai said, a stance that surprised some overseas scientists.

“They chose to use embryos that would soon be destroyed. So far, we have been regarding it as a very fundamental research, instead of interventions in or editing of germ cells,” Ms. Zhai said.

But she struck a warning note: “If you want to edit genes in germ cells with the intention of using this right away, it’s absolutely not O.K., because the technology has yet to become mature.”

Disturbed by the recent study, Rao Yi, a professor of biology and director of the four-year-old Center of Life Sciences at Peking University, run jointly with Tsinghua University, warned that scientific research in China urgently needed more effective ethical oversight.

“The more technology we have, the more dangerous we are to ourselves and entire humankind,” Dr. Rao said.

Chinese scientists are generally poorly paid, he said, but may receive a bonus of up to $32,000 per article from the state for publishing in international scientific journals, providing financial incentives for pushing the boundaries.

“Do first, talk later” is the attitude of many, Dr. Rao and two colleagues wrote recently on iScientist, an online community for Chinese researchers.

A global medical ethics body run by the World Health Organization or the United Nations should be set up to regulate scientific experimentation, Dr. Rao said.

More unpleasant scientific surprises are looming, several scientists said. “Right now, human gene editing is the main thing,” Mr. Yi said. Geneticists in China “don’t want to be guided by Western people.”

The mind-set among Chinese researchers, according to Mr. Yi: “ ‘We’re going to do it, then see what’s wrong, then fix it. But the conceptual discussion may be missing.’ ”
Correction: June 30, 2015

[Crafty_Dog]

Memo to China: Your Market Moves Are Doomed to Fail
By Jason Zweig

In your heart, you probably hope the Chinese government will succeed in its stunning interventions this past week to stay the panic on China’s stock exchanges.

In your head, you should suspect it will fail.

There’s something poignantly human about every attempt to make markets behave as we all wish they would: always rising and making us richer, never falling and inflicting pain upon us.

Governments have been trying—and failing—to control markets for centuries. If the Chinese government succeeds, it will be the exception to that rule. If it fails, the results could be dire.

The Chinese authorities made a rising stock market such a priority that they encouraged local investors to buy stocks on margin, or with borrowed money, until total margin loans exceeded $320 billion. That was nearly 9% of the total value of Chinese stocks—and 10% greater than the gross domestic product of Hong Kong.

“Not only were Chinese investors not familiar with the downside risks of [trading on margin], neither were the regulators and policy makers,” says Zhiwu Chen, a finance professor at the Yale School of Management who studies the Chinese capital markets. “As a result of this recent experience, I do think China will go through much rethinking and slow down its efforts to open up its financial markets.”

Other governments have blazed, or bumbled along, the same trail.

After the bursting of the speculative South Sea Bubble in 1720, the British Parliament instituted Sir John Barnard’s Act, which, starting in 1734, banned trading in futures and options. Traders shrugged and kept on speculating; the law remained on the books, bereft and ignored, until it was finally repealed in 1860.

After Wall Street’s first crash, in 1792, the state of New York banned futures trading and short selling; speculators paid no heed. As populism swept the U.S. in the late 19th century after several market panics, state after state banned trading in options. But speculators traded anyway—even in crooked “bucket shops” if they had to.

Even the Code of Hammurabi (ca. 1750 B.C.) stipulated that traders who didn’t use the sales contracts mandated by the king “shall be put to death.” Speculators probably pulled their braided beards and found ways to evade the heavy hand of that government, too.

After the Japanese stock market collapsed in 1990, the government introduced “price-keeping operations,” buying billions of dollars’ worth of shares toward the end of the fiscal year. That swelled up the balance sheets of Japan’s biggest banks, which had enormous stockholdings—but it prevented the banks from cleaning up their bad loans. Even now, after a recent binge of stock buying by the Bank of Japan, the Nikkei 225 index lurks 49% below its record level, in 1989, of more than 38900.

In China, too, debt is the problem. “When a bubble pops, it’s leverage that almost always proves so corrosive and destabilizing on the way down,” says Lawrence White, professor at New York University’s Stern School of Business who specializes in financial regulation.

By leaving regulations on margin debt loose, the Chinese government is encouraging further speculation in stocks that may still be overpriced.

“If stocks remain above their fundamental value, then all [the Chinese government] is doing with these kinds of interventions is trapping capital rather than letting investors reallocate it to a higher use,” says Eugene White, an economist at Rutgers University who studies the history of financial booms and busts.

And, if that’s the case, this round of interventions may only end up necessitating more.

As of this Friday, stocks on the Shenzhen Stock Exchange traded at an average of 45 times their earnings. That price/earnings ratio is down from its high of 68.9 in June. But it’s still more than double the average P/E of 18.5 for stocks world-wide, according to the investment firm MSCI.

“There is a possibility that [Chinese policy makers] have overestimated their ability to manage this situation,” says Thomas Rawski, an economist at the University of Pittsburgh who has been analyzing the Chinese economy for more than 40 years. “The outcome depends on the psychology of the investors in these markets.”

And that can be fiendishly hard to control. Financial historian Larry Neal of the University of Illinois likens the Chinese authorities to John Law, the brilliant 18th-century financier who, serving the French government, simultaneously pumped up the value of that nation’s currency, national debt and stock market.

In late 1719, after investors turned euphoric and then panicked, Law stepped in to support market prices. As soon as he stopped propping them up, prices fell again. Then Law “decreed a markdown,” says Prof. Neal, “and that just destabilized everything.” The collapse of Law’s plan, now known as the Mississippi Bubble, wiped out his company’s stockholders and effectively stifled the financial markets of France for at least a century.

The economist Friedrich Hayek wrote that markets are a “marvel” at aggregating small insights from large numbers of people. The data or power to outsmart markets isn’t given to governments, he warned, “and can never be so given.”

The Chinese government regards markets as clay that can be molded. Instead, markets are like water: They always find their own level, no matter who or what tries to control them.

Roughly 1,000 years ago, King Canute demonstrated that not even the most powerful monarch can command the waters. Sooner or later, the Chinese government will learn the same lesson.

[G M]

Yup

[Crafty_Dog]

 China's Crisis: The Price of Change
Geopolitical Weekly
August 18, 2015 | 08:08 GMT
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By Rodger Baker

Last week was an eventful one for China. First, the People's Bank of China shocked the financial world when it cut the yuan's reference rate against the U.S. dollar by nearly 2 percent, leading to a greater than 2 percent drop in the value of the yuan in offshore trading. The decline triggered a frenzy of speculation, including some expectations that the Chinese move would trigger a race to the bottom for Asian currencies. Beijing said the adjustment was designed to fix distortions between the trading rate of the yuan and the rate it should have been at according to speculation, and that subsequent large shifts were unlikely. The International Monetary Fund, however, noted that the move could lead to a freer floating yuan — something the IMF has asked of Beijing before the organization considers including the yuan in its Special Drawing Rights basket of currencies. In comments made on the sidelines of its annual report on the Chinese economy, released later in the week, the IMF also noted that the yuan was not undervalued, despite the decline.

Also last week, Chinese state media issued a warning to retired officials to stay out of politics and not misuse their former networks and prestige. The warning followed reports in state media suggesting that the annual unofficial gathering of current and former Party officials at Beidaihe was canceled and would not serve as a policy-making venue in the future. The reports noted that Party officials had already held several additional sessions in Beijing and that decisions were being made in the open, not in some secretive gathering of Party elders. Other reports circulating in Chinese media warned that former Party and military officials were involved in real estate speculation along with other economic mismanagement and needed to stop.

Finally, last week China dealt with one of its worst industrial accidents in years — a series of explosions at a chemical short-term storage facility in the busy port city of Tianjin. More than 100 people were killed in the explosions and aftermath, prompting the government to launch an investigation into illegal storage and improper safety procedures at that and other facilities around the country. Citizens have begun small-scale demonstrations in Tianjin to demand government reparations for damages as a result of the blast. In response, Beijing stepped up its media campaign against rumors, using state media to remind the public that the government publicly charged a Politburo standing committee member with corruption, so the public can trust the government to be open and not hide a conspiracy surrounding the Tianjin blast.

If there is a common theme running through these events, it is the way Beijing is emphasizing its openness in decision-making, in reporting and in explaining its actions. This is not the China of the past that tried to hide the truths of major natural or man-made disasters from its citizens. It is not the China that operated by secret agreements made only after a consensus of Party elders, or the China that tried to protect Party officials at the expense of the public. Nor is it the China of tight currency controls, amid fears that the vagaries of global markets could affect China's economic regulation. Or at least that is the message Beijing is trying to send. It is a message perhaps meant more for domestic than international consumption, but one that recognizes that neither abroad nor at home is there a lot of trust in the Chinese Communist Party or the government to pursue a transparent policy. The taint of corruption, collusion and nepotism remains strong and is perhaps even reinforced by the breadth and depth of the ongoing anti-corruption campaign.
Old Systems Become Obsolete

The reality is that China is in the midst of what may be its most serious crisis since the days of Deng Xiaoping. And the model of government and economy Deng put in place is no longer effective at managing China, much less shifting it in a new direction.

As China emerged from the chaos of the Maoist era, Deng initiated three basic policies for China's future growth and development, starting around the early 1980s. First, allow the economy more localized freedom, accepting that some areas would grow faster than others but that in the long run the rising tide would lift all boats. Second, prevent any single individual from truly dominating the Chinese political system. No longer could a figure like Mao Zedong exert so much personal influence that the entire country could be thrown into economic and social upheaval. Instead, China's leaders would be locked into a consensus-driven model that limited any individual source of power and eliminated factions in favor of widespread networks of influence that overlapped so much they could not be truly divisive. And finally, walk softly internationally, be ruthless in the appearance of a non-interference policy and avoid showing any military strength abroad. This latter point was intended to give China time to solidify internal economic and social cohesion and strength while avoiding distraction or inviting undue military attention from its neighbors or the United States.

In retrospect, Deng's model worked exceptionally well for China, at least on the surface. While the Soviet Union collapsed, the Communist Party of China held together, even after Beijing's mismanagement of Tiananmen Square. Although at times slow to respond or initiate proactive change, China's leaders managed the country's rapid economic growth in a way that avoided extreme social or political destabilization. The Party managed not only the leadership transitions set in motion by Deng, but also, amid intra-Party scandal, the latest transition to Xi Jinping. China's leaders even managed the impact of the global economic slowdown and appear capable of maintaining order even as economic growth rates slow considerably.

But the relative calmness on the surface belies disturbing deeper currents. The dark secret of consensus rule was that, while appearing to provide stability, by the late 2000s it was doing more to perpetuate underlying structural problems that could delay or even derail actual reforms or economic evolution. The lack of radical shifts and turns, the avoidance of major recessions and the ability to defer significant but potentially destabilizing reforms made China look like an unstoppable juggernaut. China's economy climbed past Japan's and seemed destined to surpass the U.S. economy. And if economic strength translated into total national strength, then China was emerging as a significant global power. Beijing even began breaking from Deng's cautions on overt military power and started a more assertive foray into the East and South China seas, both because of a perceived need to protect its increasingly important sea lanes carrying natural resources and exports and because it was feeling more powerful and capable and wanted to act on those strengths.

However, all economies are cyclical. As they grow through different stages, the deadwood needs to be trimmed and funding provided for the new shoots. Recessions, slowdowns, bankruptcies and sectorial collapses are all part of the natural economic process, even if they are disruptive in the short term. As China claims to be climbing the value chain in manufacturing and exports, it is not simultaneously trimming away older components of the economy or effectively weaning itself from the stability of large state companies that are disproportionately locking up available capital compared with total employment. Parochial interests by local and provincial governments — themselves keen to avoid any sense of instability — have left massive redundancies intact across China's manufacturing sectors, particularly in heavy industries, the backbone of early Chinese economic growth. Consensus politics allowed China to grow, but not in a healthy manner — and the global economy is no longer giving China the freedom to just keep pouring on the fertilizer and hope no one notices the rot spreading through the trunk and branches.
Xi's Crisis Management

The leadership transition to Xi in 2012 was also not nearly as smooth as it first appeared. It occurred amid the Bo Xilai scandal, in which it appeared the former Chongqing Party Secretary was making a bid not only to reshape the direction of Chinese politics but also to usurp Xi's rise to central Party and state leadership. What has emerged amid the ongoing anti-corruption campaign is that the challenge was much more serious than it may have appeared, including an alleged assassination plot against Xi.

The recent pronouncements regarding former Party leaders and officials staying out of politics suggests that challenges to Xi's position are still emerging. Xi's decision to build a national security council and economic affairs advisory body, to which he belongs, has aroused opposition from former officials used to playing a role in shaping policy. Publicly canceling the unofficial Beidaihe summit was an overt strike against former officials. The consolidation campaign continues.

While China faces some of its toughest economic challenges, and after it has stepped out into the South China Sea and international military affairs in a way it cannot easily pull back on, it is also contending with internal dissent and intra-Party fighting. Xi's consolidation drive, closely linked to the anti-corruption campaign, is all about tightening the reins of control to allow more rapid policy adjustments, force macro-policies on localities and accelerate the Party and state's response time to changing circumstances. But that challenges decades of tradition and entrenched power and interests. It also creates a contradiction: The economic policies are moving toward liberalization, but the political and social policies are moving toward autocracy.

To manage the next phase of China's economic opening and reform — something that changes in the global economy and decades of internal ossification are forcing upon Beijing — Xi is simultaneously cracking down on media, information, social freedoms and the Party itself. The fear is that significant economic reform without tight political control would lead to a repeat of the Soviet experience: the collapse of the Party and perhaps even the state.

Each event, each headline, should be assessed in the context of this internal crisis. The currency dip — an important step in liberalizing yuan trading, gaining a role in the Special Drawing Rights basket and continuing China's path toward yuan globalization (freeing the country at least a little from the dominance of the U.S. dollar) — has auxiliary risks, not least of which is that a freer currency can move in directions far from those the government would like to see. The explosion in Tianjin is reinforcing the fears of rampant mismanagement and corruption. It has sparked a new round of conspiracy speculation and is placing the government in a position where it must deal with protesters in a major city as well as foreign investors and traders — again raising uncomfortable questions about safety and security in China. The warnings against retired officials interfering in politics may be more than just public relations attempts to highlight some newfound transparency.

This is not to say China is on the verge of collapse, that the government and Party is about to fracture along internecine battle lines, or that economic reform is simply impossible in the face of entrenched interests. But none of these are out of the question. China has entered a stage of the uncertain. The transition to an internal demand-driven economy will not happen smoothly, nor will it happen overnight. The reduction in exports and the drain on investment is already under way. And with all of these issues sitting squarely on his shoulders, Xi is preparing for his September visit to the United States, where the litany of concerns about China expands daily.

The transitory period is the most chaotic, the most fragile, and that is where China sits right now.

[Crafty_Dog]

a)
http://www.wsj.com/articles/china-to-slim-down-military-1441252819

b)  Stratfor

Summary

China's already formidable military may be about to get an overhaul. With Chinese President Xi Jinping reportedly set to unveil what the media is calling the most sweeping set of military reforms since the mid-1980s, one of the most powerful forces in the world may get a reshuffling that makes it more flexible and effective. The reforms will be officially announced in the wake of a Sept. 3 military parade to commemorate the 70th anniversary of the end of World War II. One potential plan leaked to the Hong Kong-based South China Morning Post offers some insight into Beijing's intentions. Though the final reforms will likely be more conservative, the leaked proposal suggests China is generally aiming to centralize command, increase cooperation between services and look beyond hard geographic boundaries. In the end, China may be successful at improving its military effectiveness, but its reforms will fall short of loosening the Communist Party's tight grip over the country's armed forces.
Analysis

According to the South China Morning Post, it was several "reform-minded officers" who leaked a version of the reform plan to the media. The leaked proposal includes large personnel cuts and several structural changes. First, the seven existing military regions would be consolidated into four, each of which would be open to command by officers from other services. A new national guard, responsible solely to the Central Military Commission, would replace the People's Armed Police. And three of the People's Liberation Army's four general departments would merge into one — the General Staff Department. The Ministry of Defense, now a figurehead, would be empowered to conduct mobilization and recruitment activities.

The plan is probably one of the more radical options on the table, and Beijing is certainly weighing more conservative approaches. The high level of detail in the report, however, suggests that the leaked proposal survived to a late stage in the deliberation process, meaning parts of it may actually make it into the final plan — especially the long-discussed consolidation of military regions and the promotion of joint commands.

The leaked details of the reforms largely conform with those Stratfor outlined in January 2014, soon after plans were announced. At the time, China was making moves to cut its military regions down to five as well as open up positions of military leadership — previously an option for only ground force officers — to officers in the navy, air force and possibly even Second Artillery Corps. The change to a four-region structure likely came late in the discussion; as recently as April, a U.S. Department of Defense report to Congress on Chinese military and security developments still predicted five regions. But if Beijing has in fact pared it down to four, they will likely consist of a Northeast Command, charged with protecting Beijing and the border with Russia and Korea; a Southeast Command, responsible for operations in the Pacific and Indian oceans; a Northwestern Command to stabilize Xinjiang and protect Gansu and Qinghai; and a Southwestern Command to secure Sichuan and Tibet. Even with the slight change in details, Stratfor's projections for the overall reform trends still hold: increasing centralization, increased cooperation between services and the erosion of hard geographic boundaries.

The People's Liberation Army's current operational structure is centered on land-based warfare to be conducted within the framework of seven military regions. This is an artifact of the military's primary Cold War mission: to conduct a "people's war" against an invader, most likely the Soviet Union, by mobilizing the entire population to draw enemy forces into the interior and wear them down. However, the times — and the strategic situation in East Asia — have changed a great deal. Beijing now needs to build capabilities that will allow it to carry out missions along the Chinese periphery in areas that include the East China Sea, South China Sea and Taiwan. This will mean moving beyond a model centered on ground forces. Missions in distant waters are also growing in importance. These could include counterpiracy operations in the Gulf of Aden, evacuations of Chinese citizens in the Middle East and Africa as well as joint air and naval exercises beyond the first island chain. The projected reforms would free the military from its territorial focus and help to integrate other branches of the services more closely.

China's leaders have understood for decades that the existing military structure is inadequate to meet the nation's changing needs. But Beijing is just now overcoming the structural constraints that have barred reform. These included limitations in terms of capability, such as poorly trained personnel, outdated equipment, and primitive command and control. More important, however, were the political obstacles: military corruption as well as powerful entrenched interests in both top brass and the retired officer pool. The Chinese government has worked for years to overcome these limitations, not only making broad investments in modern equipment and weaponry research and development but also raising education requirements for new recruits, trimming redundant personnel and stepping up joint as well as transregional exercises. Military exercises in particular have laid the groundwork for the smooth and frequent cooperation between branches of the military.

Of course, the upcoming reforms will almost certainly reduce high-level staff positions and eliminate some patronage networks, prompting opposition among government and military officials — and especially among the People's Liberation Army ground forces. It was to overcome this resistance that President Xi Jinping in 2013 launched a far-reaching and ongoing military anticorruption probe, which has helped purge over 30 generals this year alone. It also brought down two retired vice chairmen of the Central Military Commission, Xu Caihou and Guo Boxiong, who had been the highest-ranking generals in the People's Liberation Army under Hu Jintao. Yet in spite of progress, resistance will persist or even worsen as reforms continue. Surveillance over military officers and intense anticorruption investigations are likely to intensify, as are moves to bar retired officers from influencing policy, which is part of an overall trend in all parts of the Communist Party.

The Chinese military will certainly become more professional as a result of these reforms, but only in a very specific sense of the word. The People's Liberation Army will develop the organization and skills necessary to prevail in modern warfare. This, however, will in no way loosen the Communist Party's hold over China's armed forces. The interests of the Party will continue to dominate the military. And though the leaked plan would elevate the role of the Ministry of Defense — a government and not a Party organ — Beijing will most likely opt to reject that and other elements that reduce the influence of the Communist Party. Indeed, Chinese state media have continued to caution against calls to nationalize or depoliticize the People's Liberation Army. Wary that reforms empowering the military could also erode Party control, the Party will be quick to slow and even reverse reforms if the careful balance between Party control and military effectiveness tips too far away from the Party. Whatever impact the reforms may have on the military's capabilities, the People's Liberation Army will remain the Party's gun.

[Crafty_Dog]

Dear President Xi,

Welcome back! The last time you were stateside—at the Sunnylands estate in California a couple of years ago—you seemed to be at the top of your game. China’s GDP was about to overtake America’s. You were cracking down on corruption, liberalizing markets, setting the pace for what you called “the great rejuvenation of the Chinese nation.” Upper East Siders competed to place their toddlers in Mandarin immersion programs. Newspaper columnists fantasized about the U.S. becoming “China for one day.”

Now your stock market has fizzled, your economy is sinking under the weight of unsustainable debts and zombie companies, your neighbors despise you, and every affluent Chinese is getting a second passport and snapping up a foreign home. Even in Beijing, word is out that behind that enigmatic smile you’re a man overmatched by your job. And out of your depth.

Maybe you’re even thinking: Wouldn’t it be nice to be America for one day?

Yes, America, perhaps the only country on earth that can be serially led by second- or third-rate presidents—and somehow always manage to come up trumps (so to speak). America, where half of the college-age population can’t find New York state on a map—even as those same young Americans lead the world in innovation. America, where Cornel West is celebrated as an intellectual, Miley Cyrus as an artist, Jonathan Franzen as a novelist and Kim Kardashian as a beauty—and yet remains the cultural dynamo of the world.

America, in short, which defies every ethic of excellence—all the discipline and cunning and delicacy and Confucian wisdom that are the ways by which status and power are gained in China—yet manages to produce excellence the way a salmon spawns eggs. Naturally. By way of a deeper form of knowing.

This is indeed the kind of country it would be good to be, at least for a while. In Beijing, the smartest people at the top are working harder than ever to produce increasingly mediocre results. In Washington, the dumbest people ever keep lollygagging their way to glory. When a man, or a country, gets lucky every time, it’s not luck. There’s a secret. Would you like to know it?

Start with the basics, President Xi. The United States solved the problem of political legitimacy through its foundational acts. You still haven’t. We have no umbrella revolutions here, as you just did in Hong Kong. We don’t run the risk of peasant revolts, either, because (the Jim Crow South aside) we never had peasants. They were always citizens, and largely freeholders.

In other words, limited government, a check on your personal power, is the best guarantee that your institutions will outlast your person. And it solves the ancillary dilemmas of unlimited power: the dilemma whereby disagreement becomes subversion, and information becomes dangerous, and in which the inner life of every citizen is a potential threat to the state. You cannot run a 21st-century economy by limiting, for political reasons, the quantity of available information to something less than the quantity of necessary information.

Limited government has another advantage, Mr. President. It means limited responsibility. Even George W. Bush’s or Barack Obama’s angriest critics can’t quite blame them for everything (though the Bush critics try). U.S. presidents don’t have the mandate of heaven, so they don’t have the burden of it, either.

Yet when China’s stock market tumbled this summer, you got blamed. Rightly so. It was your government that urged small investors to pile into stocks, your government that encouraged margin lending, your government that tried to fix the market through political force majeure. Such was the public’s faith in the completeness of your control that investors were surprised when the Shanghai Composite fell on your birthday.

Now that faith has been fractured, and what’s fractured easily shatters. That’s the risk you run when you’re running China, and it tends to bring out your worst instincts: the need to exude authority, the paranoid fear of losing control. Just when you need to learn the virtues of flexibility and adaptation, you become rigid. It compounds the problems you are trying to solve.

As for Americans, we’re the failure experts. We expect it, forgive it, often celebrate it. We do this partly because we’re soft, but also out of hardheadedness. If tolerance of failure is a prerequisite for success, then you need to love your failures as much as you do your successes.

Do you?

President Xi, we sympathize. A few years ago, it seemed that you had the happy task of steering a country in its ascent. Now the question is whether you can reverse decline by trading power for reform. Given what we know of your upbringing as a Communist Party princeling, that can’t be easy.

Then again, it can be no comfort to live with the fear that you may be the last of your political line. Try being America for a day. And the day after that, too.

Write bstephens@wsj.com.

[Body-by-Guinness]

http://thefederalist.com/2015/09/28/chinas-coming-great-depression/

[Crafty_Dog]

Very interesting; so in accord with what I have been saying here for several years now that I wonder if the author is yet another secret lurker here 

That said on a quick read of this long article I find his references to "supply side" to be utterly incoherent.

[G M]

http://thefederalist.com/2015/09/28/chinas-coming-great-depression/

Their's and/or ours?

Something else to consider:

http://www.internationalman.com/articles/how-the-chinese-will-establish-a-new-financial-order

[G M]

http://fortune.com/2015/10/15/china-billionaires/

[Crafty_Dog]

http://www.ft.com/cms/s/2/6e098274-587a-11e5-a28b-50226830d644.html?ftcamp=traffic/social_promo/Chinas_great_games_14Oct/facebook_US_Core/essence_comment/auddev&utm_source=facebook_US_Core&utm_medium=social_promo&utm_term=Chinas_great_games_14Oct&utm_campaign=essence_comment#axzz3pbCT8B8o

[Body-by-Guinness]

Hmm, Chinese economic indicator reports are suddenly not being issued:

http://www.bloomberg.com/news/articles/2015-12-21/china-loses-another-economic-indicator-as-minxin-suspends-pmi

Perhaps vestiges of a command economy remain and, if so, what does this signal censorship bode?

[G M]

Hmm, Chinese economic indicator reports are suddenly not being issued:

http://www.bloomberg.com/news/articles/2015-12-21/china-loses-another-economic-indicator-as-minxin-suspends-pmi

Perhaps vestiges of a command economy remain and, if so, what does this signal censorship bode?

More or less crooked than the stats our government feeds us?

[DougMacG]

Hmm, Chinese economic indicator reports are suddenly not being issued:
http://www.bloomberg.com/news/articles/2015-12-21/china-loses-another-economic-indicator-as-minxin-suspends-pmi
Perhaps vestiges of a command economy remain and, if so, what does this signal censorship bode?

More or less crooked than the stats our government feeds us?

We keep calculating and reporting indicators known to be false and they censor indicators that might reveal truth.

In retaliation for Chinese hacking and patent violations maybe we can set up broadcast stations on the disputed islands and send out information the Chinese government is censoring from the Chinese people.

[Crafty_Dog]

WSJ

EIJING—China has pulled hundreds of millions of people from poverty, supercharged its economy and burnished the pride of a nation that stood weak and isolated only decades ago.

But swelling levels of debt, bloated state companies and an overall aversion to market forces are swamping the world’s second-largest economy, threatening to derail China’s ascent to the ranks of rich countries.

As Beijing battles another bout of stock-market turmoil—and global markets shudder in response—the risks of doing nothing about these deep-seated problems are rising, economists said. Without a change in course, they said, China faces a period of low growth, crimped worker productivity and stagnating household wealth. It’s a condition known as “the middle-income trap.”

“The era of easy growth is over,” said Victor Shih, professor at the University of California-San Diego. “It’s increasingly about difficult choices.”

Some economists don’t rule out an abrupt drop in growth, a hard landing that would see bad debts soar, consumer confidence tank, the Chinese yuan plunge, unemployment spiral and growth crater.


More likely is that Beijing will continue to prop up growth, steering more capital to money-losing companies, unneeded infrastructure and debt servicing, depriving the economy of productive investment and leading to the sort of protracted malaise seen in Japan in recent decades. But China is less prosperous than Japan.

An anemic China would weaken global growth at a time of low demand and prolong the downturn for big commodity producers like Brazil that have been dependent on the Asian economic giant.

“They don’t want to take the pain,” said Alicia Garcia Herrero, economist with investment bank Natixis SA. “But the longer they wait, the more difficult it becomes.”
Workers made shoes for export at a factory in Putian, located in southeast China's Fujian province, on Thursday. ENLARGE
Workers made shoes for export at a factory in Putian, located in southeast China's Fujian province, on Thursday. Photo: Lin Jianbing/Zuma Press

Chinese leaders are aware of the risks. On Tuesday, Premier Li Keqiang called for a greater focus on innovation to spur new sources of economic growth and to revitalize traditional sectors, according to the Xinhua News Agency.

A far-reaching economic blueprint laid out in 2013 after President Xi Jinping came to power vowed to let markets take a “decisive” role and build out a legal framework to restructure the economy and benefit consumers and small businesses, rather than industry.

Progress to date, economists said, has been disappointing. Political objectives stand in the way. Mr. Xi has committed the government to meeting a goal of doubling income per person between 2010 and 2020, the eve of the 100th anniversary of the ruling Communist Party. That means, in Mr. Xi’s eyes, that growth must reach 6.5% annually.

With global demand slipping and fewer Chinese entering the workforce, Beijing will need to resort to stimulus spending to get there, analysts said, delaying the reckoning with restructuring.

“It’s very costly and inefficient to reach these growth targets,” Mr. Shih said. “The political leaders want all these good outcomes, growth, some degree of reform and a high degree of stability,” without recognizing the tough trade-offs these entail, he said.

One such trade-off is that between pollution and growth. By letting steel and other heavy industries in northern Hebei province ramp up to meet their year-end production targets last year, the government left the capital bathed in toxic pollution, angering the city’s residents, according to Mr. Shih. If Beijing shutters them, growth will fall, leading to more unemployment, which is another potential source of unrest.

Among the most nettlesome issues is what to do about the state companies that dominate heavy industry and strategic sectors of the economy and wield great political influence.

Some state firms remain in business despite massive debt, several years of loss-making operations and a weak business model—Chinese officials have dubbed them “zombie” companies. Earlier this month, during a visit to the northern industrial city of Taiyuan, Mr. Li railed at the drag of “zombie” companies, according to a government account. He said they should be denied loans to reduce excess supply in the steel and coal industries.

State companies suck up 80% of the country’s bank loans, while delivering a return that’s a third below that of private Chinese firms and half that of foreign companies, according to estimates by Spanish financial institution Banco Bilbao Vizcaya Argentaria SA.

Reducing the footprint of these state behemoths, let alone getting rid of them, poses a huge challenge. Société Générale CIB calculates that a 20% reduction in excess capacity among state companies in the most distressed sectors of iron and coal could lead to 1 trillion yuan ($151.7 billion) in bad loans—equivalent to 2% of the nation’s bank loans—and 1.7 million laid-off workers, or 0.3% of the urban workforce.

Labor protests have already increased in a slowing economy as the number of demonstrations hit a record in December, according to a Hong Kong-based monitoring group, and the government has in the past chosen to boost growth to keep employment high and forestall the risk of social unrest.

Getting a handle on the mounting pile of debt is becoming a critical task in the eyes of some economists. While debt levels are manageable by global standards, their rate of increase has set off alarm bells. Fitch Ratings estimates that China’s total debt was equivalent to 242% of its gross domestic product by the end of 2014, up from 217% a year earlier.

Servicing that debt now costs households and companies some 20% of GDP, according to the Bank for International Settlements. That level, said research firm Gavekal Dragonomics, puts China on a par with Korea and higher than the U.S., Japan and the U.K.

Rising debt also threatens to crowd out the innovators and entrepreneurs that China is counting on to reboot growth.

China stands to reap a huge dividend if it weeds out the economy’s many inefficiencies and vast amount of misallocated capital, said Eswar Prasad, economics professor at Cornell University and former China head for the International Monetary Fund.

“My view is that reforms and rebalancing are compatible with high growth,” he said. “Of course, high growth built on a shaky foundation of rapid credit expansion without reforms and rebalancing would be undesirable and risky.”

Write to Mark Magnier at mark.magnier@wsj.com

[Crafty_Dog]

The start of 2016 has been rough for China. Monday saw the introduction of a new mechanism in the Chinese stock market: a circuit breaker that automatically shuts the market down if prices go into free fall. Within four days, the circuit breaker went into action twice, halting trading on two different days in an attempt to stop the decline. Though this might be worrying for the Chinese government, it is not new; a study shows that if such a circuit breaker had existed last summer, it would have been triggered at least 20 times.

In truth, this activity in the stock market pales in significance to the other major development of the week: Thursday's announcement that China's foreign exchange reserves dropped by a record amount in December, from $3.4 trillion to $3.3 trillion. That brings last year's total decline in foreign exchange reserves to $513 billion.

If the stock market woes are evidence that investors are losing faith in the Chinese economy, the foreign exchange reserve depletions are direr, because they signify the Chinese government's diminishing ability to cope with its problems. Beijing's inability to control its economy has global implications — such as contributing to an extended period of low demand, and thus low prices, for oil and other commodities — but it also highlights China's struggle in balancing some of its short-term financial market concerns against its long-term and much more important overall political and economic reforms.

Worrying about the level of foreign exchange reserves is relatively new for China. As China kept its low peg to the dollar and exported vast quantities of goods, foreign currency gushed into the country for much of the past two decades. From the perspective of international financial markets, high levels of foreign exchange reserves are a source of comfort. They give a country the power to defend its currency, and any government that allows its reserves to run too low runs the risk of becoming victim to speculators. China has thus spent much of the past two decades creating for itself a seemingly invincible position, building its reserves from $142 billion (18 percent of gross domestic product) in 1997 to $4 trillion (43 percent of GDP) in 2014. However, this invincibility — both in foreign exchange reserves and, more broadly, the health of the Chinese economy — is now coming into question as a result of both internal and external forces.

The United States began tightening its monetary policy with the Federal Reserve's interest rate hike last month. This caused the dollar to appreciate, meaning that the yuan, which was de facto pegged to the dollar, rose along with it. Meanwhile, the investment capital that China was pumping into its own economy as part of its post-2008 model found its way into the domestic stock market, blowing a massive speculative bubble that peaked in summer 2015. The bubble deflated somewhat in August, when the People's Bank of China announced a shift in its currency peg that the market took as a signal that the yuan was set to depreciate. As a result, in the second half of 2015, China introduced measures to sustain stock prices, including both capital injections and enforced freezes on selling stock, while trying to maintain its currency peg in order not to spook the markets even more. All of these things cost money, and the funds came from the foreign exchange reserves.

The loose monetary policy that keeps funds flowing into stocks also costs money because it applies a depreciatory force on the yuan as capital flows out of the country (defying capital controls in the process). The currency must then be propped up with foreign exchange reserves. Thus, since mid-2015, China's foreign exchange reserves have been depreciating rapidly. In October, the drop broke a quarterly record, and the December figures set a new monthly record.

Although the stock market is getting a lot of attention, China's macro-economic picture also offers little cheer. The continued slowdown in industry — such as hints of sluggishness in the service sector — is one of several larger underlying problems China is struggling to deal with. China's difficulty in managing its stock market, foreign exchange reserves and currency regime is merely a reflection of those core issues.

China's is a structural problem, and the fix requires a long time and a lot of disruption. Many of the major reforms needed to solve these problems quickly become points of political friction. For example, reforming the country's household registration system (known as hukou) is an integral part of creating an urban consumer class. However, the conversion of rural migrants to city dwellers would force cities to expand social services. Hukou reform then becomes a key political issue between central and local governments over the costs of expanded social services for new urban migrants.

So, as we saw in Europe, economic and financial issues are growing into political issues in China. In Europe, it was the revival of nationalism and national self-interest. In China, similar issues of regionalism will arise. But this all occurs under a single central party, so it is a twofold crisis — one of central macro-control versus local interests, and one of the very purpose and strength of the single-party system. China will continue to have short-term market effects on matters such as the demand for commodities, but there is a larger and more significant issue.

That issue is whether China can make the transition in its structure, how long it takes, whether it is managed or chaotic, and whether the current political structure holds together or breaks apart. This is a long story — one that unfolds over a couple of years, that will have peaks and troughs, moments of chaos and moments of seeming success. But it is a holistic story more than a story of discrete events or discrete numbers. It is a story about whether China emerges as the next major power, whether China remains a second-tier power that can manipulate variable coalitions to exert influence, or whether China finds its relevance waning.

[Crafty_Dog]

http://www.nytimes.com/2016/01/18/business/dealbook/indebted-chinese-companies-increase-pressures-on-government.html?emc=edit_th_20160118&nl=todaysheadlines&nlid=49641193&_r=0

[Crafty_Dog]

http://www.wsj.com/articles/beijings-overseas-kidnapping-1453142407

[Crafty_Dog]

http://www.nytimes.com/2016/01/20/business/international/china-economy-slowdown.html?emc=edit_th_20160120&nl=todaysheadlines&nlid=49641193&_r=0

[Crafty_Dog]

China: The Power of Military Organization
Analysis
January 25, 2016 | 09:30 GMT Print
Text Size
Chinese soldiers ride in tanks during a military parade Sept. 3 in Beijing's Tiananmen Square. (Kevin Frayer/Getty Images)
Forecast

    Organizational reforms will improve China's ability to conduct joint military operations.
    China will model its reorganization after the U.S. military, but, as U.S. history proves, the process will be long and difficult.
    China's ground forces, currently the service branch with the most power and authority, will be the biggest impediment to any reforms.

Analysis

China's People's Liberation Army has long known it needs to adapt if it hopes to compete with the world's most advanced militaries. Over the past several decades, China has risen to become a prominent player on the world stage with global operations and interests far from its shores. As the People's Liberation Army reorients itself toward China's evolving priorities, weapons acquisitions have garnered the most international attention. But Beijing knows that its success will depend on seemingly banal organizational reforms. Originally, China's military was organized at a time when Beijing's interests were mostly limited to internal security, meaning that the navy and air force were sidelined. Today, growing maritime competition in the Pacific with both the United States and its ally Japan means that it is urgent for China to increase its military's ability to conduct seamless joint operations.

Technological networking is at the forefront of modern warfare and is the trend driving innovation. Networking has enabled almost instantaneous command and control, enhanced situational awareness and precision kinetic effects. To be competitive in this networked environment, however, countries must design military structures that can coordinate combined arms on the battlefield. Militaries must also accept broad cooperation between their branches for the purpose of training, supporting and equipping combat elements. Inability to effectively meet these requirements promises tremendous inefficiency at best and military disaster at worst.

The latest round of China's military reforms were launched at the start of 2016 and are intended to prevent such a disaster. Although Stratfor has covered the more granular aspects of the reforms at the general staff and service headquarter levels, we would like to take this opportunity to step back and look at the larger implications: the transformation of the People's Liberation Army (PLA) into an organization structured to conduct modern operations and to protect Chinese interests in distant parts of the globe. Notably, in early January, the Central Military Commission, China's highest command authority, released a new military reform guideline. This prescribed a new command structure in which the Central Military Commission handles overall administration of the military, while battle zone commands focus on combat operations, and the services focus on force development.

The changes bear a striking resemblance to those made by the U.S. military after the passage of the Goldwater-Nichols Act in 1986. Goldwater-Nichols was one of the most sweeping reorganizations of the U.S. military ever undertaken, and it greatly improved the United States' ability to conduct joint operations. Although it is important to recognize the differences between the modern day PLA and the pre-1986 U.S. military, a review of the landmark piece of U.S. legislation sheds light on China's coming challenges.

Goldwater-Nichols: The Breakdown

As early as World War II, the United States found it extremely difficult to coordinate between the Army and Navy when planning, conducting operations or acquiring materiel. The challenge was that each branch of the military answered to different Cabinet-level secretaries. Despite combining the Army, Navy and newly created Air Force under a single secretary of defense in 1947, vicious interservice rivalries continued to disrupt coordination well into the Cold War. Air Force Gen. Curtis LeMay, the most famous commander of the U.S. Strategic Air Command, explained the problem: "The Soviets are our adversary. Our enemy is the Navy."

Worse, the powerful service branches usurped much of the legal operational authority of the commanders-in-chief of the unified combatant commands. It was common for commanders-in-chief to find forces moved into or out of their areas of responsibility at the behest of the service headquarters in Washington, sometimes even without the knowledge of the region's commander-in-chief. The Vietnam War in particular was made significantly more complex because of unclear lines of command and lack of unity. These issues also contributed to the catastrophic failure of Operation Eagle Claw, the 1980 attempt to rescue American hostages in Iran.

Motivated by the magnitude of the problem, Congress began again in 1982 to craft legislation to reorganize the military. This effort would eventually result in the Goldwater-Nichols Act. The new legislation completely overhauled the military's operational chain of command and reduced the powers of the services. Naturally, the services bitterly resisted throughout the nearly five-year process. The act, however, succeeded in strengthening the power of the secretary of defense over every branch of the military. It also clarified that operational chain of command from the secretary of state to the combatant commands did not run through the service headquarters. The joint chiefs of staff, for their part, lost their direct operational roles. Instead they were given the role of advising the president, as well as facilitating planning and coordination among the services. The service branches themselves were relegated to support roles tasked with organizing, training and equipping the forces needed to carry out the plans of the combatant commands.

The bitter struggle to reform the U.S. military has produced clear rewards, evident as early as the Gulf War, during which Central Command commander Gen. Norman Schwarzkopf attributed much of the effectiveness of his forces to the clear lines of authority established by Goldwater-Nichols. The 2002 invasion of Afghanistan and the 2003 invasion of Iraq further cemented the United States' reputation as the world's leader in joint warfare.
China Takes Notice

China, like the rest of the world, took notice of the increased effectiveness of the U.S. military. The Gulf War and the 1995-1996 Third Taiwan Strait Crisis, in which the U.S. sailed two carriers into the vicinity of Taiwan, demonstrated critical deficiencies in the PLA's capabilities. At the same time, China's growing wealth spread its interests across the globe. These factors drove more than 20 years of rapid military modernization. The PLA upgraded its hardware and devoted an increasing share of resources to the navy, air force and second artillery, since renamed the Rocket Force.

However, as in the United States, sweeping organizational reform has lagged behind the modernization of equipment. These reforms are crucial if the PLA hopes to become a truly effective modern military — a fact that the Chinese fully recognize. Modernized equipment without modern structure, training and experience does not make a modern military. China has learned this from bitter experience, particularly when the Japanese navy sunk an Imperial Chinese fleet that far outgunned it on paper during the First Sino-Japanese War (1894-1895).

Through 2015, the Chinese military faced an increasingly complex mission set and threat environment with an archaic organizational structure. The Central Military Commission left implementation of policy to what were known as the Four General Departments — four separate headquarters that collectively functioned as a joint staff over the entire PLA but also as the de facto ground force headquarters. A central focus on the army also pervaded the lower levels of command. During times of peace, military region commanders, who were exclusively from ground force backgrounds, were in charge of ground forces; during war or heightened states of alert such as the Third Taiwan Strait Crisis, military commanders assumed command over the navy, air force and second artillery troops in their area. This structure was inefficient and ill-suited to carrying out the joint operations demanded by the rigors of modern warfare.
The PLA Plays Catch-Up

The current wave of reform, pushed through by Chinese President Xi Jinping, much like the Goldwater-Nichols Act delineates a very clear division of labor. The Central Military Commission will be in charge of setting and executing the overall policies of the military, the commanders of unified battle zones will be charged with combat, and the service headquarters will step back from any operational role to focus on force development. This could significantly improve the PLA's ability to function as a joint force and eliminate much of the confusion caused by the convoluted command chain.

Despite the potential benefits of reform, the U.S. experience with Goldwater-Nichols also shows that such reforms will not go unchallenged. Reform efforts in China have often been foiled by the central government's unwillingness to see them through to implementation or by opposition from vested interests. Xi and the PLA will have to delegate significant authority to the commanders of the reformed battle zones if they are to be effective, but this runs counter to the Communist Party's tendency to concentrate power at the top, a trend on the rise under Xi.

Resistance to the reforms is certain to be strong. It took the United States decades of difficulty in conducting joint operations to make Goldwater-Nichols politically feasible; then it took another five tense years for the United States to pass the reforms. For a country like China, in which the size of the bureaucracy imbues the system with a strong conservative bias, the challenge will be even more pronounced. Even as Xi pushes through this first round of reforms, the measures are undoubtedly encountering tremendous resistance behind the scenes. There have been indications that, despite a massive anti-corruption campaign to eliminate and intimidate the opposition, Xi has cut deals in order to move forward on his planned reforms. This of course is a risky move: It may be the easiest way to pass reforms, but it also could significantly reduce their efficacy. While more officers from other branches may assume senior level positions at the 19th Party Congress in 2017, it appears that the ground forces have been able to protect some of their interests and partially subvert the spirit of the reforms. 

If successful, improvements would allow the PLA to become a force truly capable of meeting the challenges of modern warfare. Still, organizational reform alone will not be sufficient to fully meet the PLA's goals. The last time the PLA conducted joint combat operations, by its own admission, was in a 1955 campaign against Nationalist-held islands off the mainland coast. Although the PLA has carried out increasingly large joint training exercises over the course of the past decade, there is no substitute for real experience.

[ccp]

Gee, does this look familiar to anyone?    How is it that China keeps coming out with military stuff that looks so familiar?

http://freebeacon.com/national-security/asia-times-chinas-shenlong-space-plane-is-part-of-growing-space-warfare-program/

[Crafty_Dog]

http://foreignpolicy.com/2016/02/11/leave-china-study-in-america-find-jesus-chinese-christian-converts-at-american-universities/?utm_source=Sailthru&utm_medium=email&utm_campaign=New%20Campaign&utm_term=*Editors%20Picks

[G M]

http://foreignpolicy.com/2016/02/11/leave-china-study-in-america-find-jesus-chinese-christian-converts-at-american-universities/?utm_source=Sailthru&utm_medium=email&utm_campaign=New%20Campaign&utm_term=*Editors%20Picks

Even without this, China has one of the fastest growing Christian populations in the world.

[ccp]

people I have spoken to about China who have first hand knowledge tell me the Chinese are laughing at us and think we are stupid. Only Trump points this out:

http://www.cnbc.com/2016/03/11/trump-may-be-proven-right-on-china-tariffs-chang.html

[DougMacG]

people I have spoken to about China who have first hand knowledge tell me the Chinese are laughing at us and think we are stupid. Only Trump points this out:

http://www.cnbc.com/2016/03/11/trump-may-be-proven-right-on-china-tariffs-chang.html

If so, then he is like Perot, good at pointing out the problem and lacking in solutions.

'All we do is lose, lose, lose... All they do is win against us...'

They are 'getting rich' by devaluing their country via its currency.  That worked where?  When?

Never?

[G M]

China is struggling to run as fast as it can, just to stay in place. It's hardly winning. Everyone in China who can, is trying to get the fcuk out.

[ccp]

Don't let your hatred for Trump cloud the fact we allow China to take advantage of us.

They are clearly catching up to us in every area.

I don't agree with one George Gilder who once shrugged it off and said something to the effect that stopping 1 billion Chinese is a fantasy. 

Ok fine but we don't have to make it easier for them at out expense.
We don't have to be stupid while they rip us off left and right.

[Crafty_Dog]

They steal intellectual property on a massive basis via hacking.