US-China (& Japan, South China Sea-- Taiwan, Vietnam, Philippines, etc)

[Crafty_Dog]

New Zealand said it would buy four submarine-hunting surveillance jets, the country’s biggest military purchase in decades, as it seeks to counter a Chinese buildup in the Pacific that has worried the U.S. and its allies.

New Zealand’s government on Monday approved the $1.5 billion purchase of Boeing Co. P-8A Poseidons used by the U.S. and its military allies including the U.K., Australia and South Korea.

“We are stepping up and being responsible in the Pacific,” said Winston Peters, who is acting prime minister while Jacinda Ardern is on parental leave. Beijing has previously accused Mr. Peters, the populist leader of New Zealand First, a minor party in Ms. Ardern’s center-left government, of being “anti-Chinese.”
Related

    Australia’s $26 Billion Warship Deal Goes to Britain’s BAE
    Defense Firms Vie to Build New Pacific Fleets
    Jim Mattis Warns of Consequences If Beijing Keeps Militarizing the South China Sea
    Australia Bolsters Military Posture in South China Sea

Chinese Foreign Ministry spokeswoman Hua Chunying said Monday that China’s development “poses no threat to any country.”

“In fact, we have created great opportunities for other countries,” she said, adding that “disputes should be peacefully resolved through negotiation by the concerned parties, and we hope the New Zealand side will do more to help with our mutual trust.”

New Zealand’s deal announcement comes just days after the small island nation unveiled a new defense blueprint warning that an “increasingly confident” Beijing is testing international rules and stability in “newly potent ways.” Ms. Hua said China affirms “some reasonable parts of that document, though we also express our concern with other parts of it.”

New Zealand scrapped its combat air force about 15 years ago to save money. The P-8 deal comes as a more assertive China expands its military, diplomatic and economic reach across an arc stretching from Africa through the Indian Ocean to the Pacific.

The deal increases New Zealand’s patrol and intelligence gathering abilities in a region expected to be home to half of the world’s submarines in a few decades, as China’s naval expansion accelerates an Asian arms race. The Poseidon can track ships and submarines across vast areas of ocean, deploying missiles, depth charges and torpedoes from a rotary launcher to sink them if necessary. The four aircraft will begin operations in 2023.

Mr. Peters, who is also New Zealand’s foreign minister, said recently the country needed to use “all the levers at its disposal to advance our national interests and protect our sovereignty” against a backdrop of rising U.S.-China tensions, the militarization of South China Sea atolls, and Beijing’s growing Pacific sway.

Australia and New Zealand are negotiating a security pact with small South Pacific island nations as a counter to the growing influence of China and Russia over regional economies including Fiji and resource-rich Papua New Guinea. China in particular has been courting island governments through a mix of aid and infrastructure loans.

“Great Power competition is back,” Mr. Peters said last month. “This government is determined to have the tools to defend and advance New Zealand’s interests.”

Robert Ayson, an expert from New Zealand’s Centre for Strategic Studies, said the choice of submarine hunting P-8s to replace a fleet of six 50-year-old Lockheed Martin Corp. P-3 Orions, signals a fresh willingness to help maintain maritime security in the Pacific.

“New Zealand’s position had firmed up. It’s more willing to say things about China that are a bit critical,” Prof. Ayson said. “If New Zealand, like Australia, feels that the maritime and strategic environment is deteriorating…then you need the P-8 to show New Zealand is willing to deploy [its military] in and beyond the Pacific.”

[Crafty_Dog]

July 18, 2018
By Phillip Orchard
Taiwan’s Quest to Modernize Its Submarine Fleet


It still needs foreign technology to build up a modern fleet anytime soon.


Twice in the past week, Chinese President Xi Jinping has gone out of his way to assert that peaceful reunification with Taiwan is Beijing’s foremost foreign policy goal. Whether or not this is wishful thinking, it reflects the reality that retaking Taiwan by force would be extraordinarily difficult, especially if Taipei has outside help. This underscores a second reality: To pave the way for reunification, whether peaceful or otherwise, Beijing thinks it must first isolate Taiwan and sap its will to fight.

Both have been illustrated in Taiwan’s quixotic quest to modernize its submarine fleet. Until the past few months, at least, Beijing had succeeded in sinking Taiwan’s submarine force without firing a shot, using its diplomatic and economic leverage to prevent foreign submarine exporters from selling to the island nation. But in April, the U.S. State Department approved licenses for U.S. defense contractors to export U.S.-made submarine technology to Taiwan. In May, Taiwan reached an agreement with a Dutch firm to upgrade its only two subs currently in service. And last week, Taiwanese media reported that firms from Japan, India and Europe had submitted design proposals for subs expected to be built in Taiwan in partnership with the island nation’s main shipbuilder. Washington reportedly encouraged the Japanese bid, and possibly the others. In the battle over China’s attempts to leave Taiwan alone and adrift, the tide may be turning ever so slightly in Taipei’s favor.

A Languishing Fleet

The woeful state of Taiwan’s undersea capabilities is one of the peculiarities of the intensifying maritime competition in the Western Pacific. Taiwan, which Beijing considers a renegade province, sits less than 100 miles (160 kilometers) from a massive adversary for whom reunification is not a matter of if, but when. Retaking Taiwan, whether by force or by peaceful means, is a strategic imperative for China – given how the island could be used to sever Chinese trade routes – and a scar on Communist Party narratives about the communist victory in the Chinese civil war. As a result, Beijing has been shoveling vast resources into developing capabilities that would be needed to bring Taipei to heel, with a naval and amphibious fleet that is growing at a breathtaking pace.

Yet, at present, Taiwan has just four submarines. Two were commissioned before the end of World War II and are used solely for training. The other two were bought from the Dutch in the mid-1980s. Taiwan has allowed its fleet to atrophy, in part, because it has been able to rely on its closest ally, the U.S., which has the most sophisticated submarine fleet in the world – not to mention the most sophisticated anti-submarine warfare capabilities, air force and so forth. Even though the U.S. recognized Beijing as the legitimate government of China in 1979, thus abrogating its mutual defense treaty with Taipei, Congress quickly passed the vaguely worded Taiwan Relations Act, requiring the U.S. to look out for Taiwan’s security to some degree. China has routinely sought to cast doubt in Taipei about the U.S. willingness to come to its defense – and Taiwan has good reason to be concerned about current U.S. ambivalence toward its allies in the Western Pacific – but Beijing can never be sure that the U.S. won’t come to save the day.

Another reason Taiwan could get by with a subpar sub fleet is that a Chinese invasion of Taiwan would be exceedingly difficult, even without a Taiwanese undersea deterrent. It doesn’t matter how many troops, arms and supplies the People’s Liberation Army can amass on the shores of Fujian province across the Taiwan Strait. To invade Taiwan, China would need the bulk of its forces to get into boats and make an eight-hour voyage into the teeth of Taiwanese firepower coming from well-entrenched, well-supplied onshore positions. Taiwan has about 130,000 well-armed troops (plus 1.5 million in reserve) and thousands of armored fighting vehicles and camouflaged, self-propelled artillery pieces. Only 10 percent of Taiwan’s coastline is suitable for an amphibious landing, and even taken by surprise, Taiwan could amass its forces at the landing zones, even under a missile barrage from Fujian, and exact high rates of attrition on the Chinese. Moreover, the PLA has zero experience with amphibious operations in a modern combat environment. Amphibious war requires extraordinarily complex coordination between air, land and sea forces, especially with logistics. An enormous number of things would have to go right for China to succeed, and the political risks of failure would be sky high.


 

(click to enlarge)


Taipei Starts to Come in From the Cold

Still, Taiwan has felt increasingly exposed without its own submarine deterrent, and it’s never been comfortable relying on U.S. intervention. China’s maritime capabilities have grown by leaps and bounds, and it’s starting to focus some attention on the amphibious realm. (In response, Japan has begun addressing its own curious lack of amphibious capabilities.)

By the end of the next decade, China is expected to have a force of some 100,000 marines, plus a fleet of sophisticated new amphibious landing ships and amphibious assault ships roughly as large as the U.S. fleet. Its own sub fleet will soon include 10 nuclear-powered boats, plus another 48 diesel-electric subs. According to the Taiwanese Defense Ministry, some 1,500 Chinese missiles are fixed on Taiwan’s onshore defensive positions, airfields and so forth at all times. In an invasion, to supplement its still-insufficient fleet of landing craft, China would deputize commercial roll-on/roll-off ships to ferry waves of troops and arms across the strait once a beachhead had been established. China’s biggest strength – its vast arsenal of anti-ship missiles and other area denial assets – is intended to prevent the Americans from joining the fray.
This buildup both improves China’s odds in an invasion scenario (albeit probably not enough to make Beijing willing to try anytime soon) and gives the U.S. greater pause about wading into what would be an extraordinarily costly fight. Moreover, China has ways to use its own subs to tighten the noose on Taiwan short of an invasion. For example, it could try to impose a blockade against Taiwan if, say, Taipei declared independence. The bulk of Taiwan’s defenses against invasion would be of little use here; Taipei wants to be able to fight fire with fire (and not have to ask the Americans to provide the fuel).

Thus, for decades now, Taiwan has been attempting to modernize its submarine fleet but to no avail. The main reason is that China has succeeded in using its economic and diplomatic power to prevent Taiwan from getting much outside help. In the past decade alone, Vietnam has bought six Kilo-class subs from Russia. Singapore is stocking its fleet with German and Swedish boats. In 2016, France beat out Japan for the right to build 12 new subs for Australia. South Korea entered the market in 2016 with its delivery of the first of three new submarines to Indonesia. Owing primarily to pressure from Beijing, all these suppliers have completely frozen out Taiwan from the underwater arms race.

The country that would be most willing to sell subs to Taiwan – the United States – is actually ill-equipped to do so. The entire U.S. fleet consists of nuclear-powered submarines. Taiwan doesn’t need nuclear-powered subs, which are ideal for long-range operations but expensive. Rather, like most countries in East Asia with limited budgets and relatively small areas to patrol, Taiwan wants diesel-electric subs equipped with modern technology like air-independent propulsion systems. These are cheaper but still stealthy and ideal for anti-area/access denial strategies in littoral waters. U.S. defense contractors don’t build these for the U.S. Navy nor for export. In 2001, the George W. Bush administration approved a plan to help Taiwan acquire diesel-electric submarines, but the deal stalled for several reasons, reportedly including opposition from, of all places, the U.S. Navy. (The Navy fears that if U.S. defense contractors started building cheaper diesel-electric subs for export, Congress would force it to buy them.)

In March 2017, Taiwan finally announced that it would build its own boats. Nonetheless, with scant experience in submarine construction, Taiwan still needs foreign technology and weapons systems to build up a modern fleet anytime soon, and foreign suppliers haven’t appeared any more inclined to go down this path. Taiwanese defense officials told the Asia Times two weeks ago that Taipei was struggling to procure critical components for its sub program. But it appears now as though outside players may have merely been waiting for the U.S. to take the lead.

It’s not yet clear how much stomach Tokyo, New Delhi or European governments really have to risk economic retaliation from Beijing for Taipei’s benefit, nor how much they’d be willing to transfer sensitive technologies given the risk that they’d end up in the hands of the Chinese. Their reasons for hesitating on the matter haven’t gone away overnight. Nor is it clear how successfully Taiwan will be able to incorporate a mix of foreign technologies into an indigenous design. Doing so is quite a bit more difficult than buying subs off the shelf.

Still, Japan and India both make some sense as partners with Taiwan in this arena, given their own growing wariness of China’s maritime expansion. For Japan, preserving Taiwan’s independence is an utmost strategic priority. The participation of either would be further evidence that a loose coalition of regional powers keen to check Chinese assertiveness is starting to take shape. And it says something that countries may be willing to shrug off concerns about Chinese retaliation if and when the U.S. does so first.

[DougMacG]

It hadn't really occurred to me that the reason China doesn't take over Taiwan is because they can't.

From the article:  Chinese invasion of Taiwan would be exceedingly difficult, even without a Taiwanese undersea deterrent. It doesn’t matter how many troops, arms and supplies the People’s Liberation Army can amass on the shores of Fujian province across the Taiwan Strait. To invade Taiwan, China would need the bulk of its forces to get into boats and make an eight-hour voyage into the teeth of Taiwanese firepower coming from well-entrenched, well-supplied onshore positions. Taiwan has about 130,000 well-armed troops (plus 1.5 million in reserve) and thousands of armored fighting vehicles and camouflaged, self-propelled artillery pieces. Only 10 percent of Taiwan’s coastline is suitable for an amphibious landing, and even taken by surprise, Taiwan could amass its forces at the landing zones, even under a missile barrage from Fujian, and exact high rates of attrition on the Chinese. Moreover, the PLA has zero experience with amphibious operations in a modern combat environment. Amphibious war requires extraordinarily complex coordination between air, land and sea forces, especially with logistics. An enormous number of things would have to go right for China to succeed, and the political risks of failure would be sky high.

[G M]

It hadn't really occurred to me that the reason China doesn't take over Taiwan is because they can't.

From the article:  Chinese invasion of Taiwan would be exceedingly difficult, even without a Taiwanese undersea deterrent. It doesn’t matter how many troops, arms and supplies the People’s Liberation Army can amass on the shores of Fujian province across the Taiwan Strait. To invade Taiwan, China would need the bulk of its forces to get into boats and make an eight-hour voyage into the teeth of Taiwanese firepower coming from well-entrenched, well-supplied onshore positions. Taiwan has about 130,000 well-armed troops (plus 1.5 million in reserve) and thousands of armored fighting vehicles and camouflaged, self-propelled artillery pieces. Only 10 percent of Taiwan’s coastline is suitable for an amphibious landing, and even taken by surprise, Taiwan could amass its forces at the landing zones, even under a missile barrage from Fujian, and exact high rates of attrition on the Chinese. Moreover, the PLA has zero experience with amphibious operations in a modern combat environment. Amphibious war requires extraordinarily complex coordination between air, land and sea forces, especially with logistics. An enormous number of things would have to go right for China to succeed, and the political risks of failure would be sky high.

A nuclear Taiwan would really make things difficult.

[DougMacG]

"A nuclear Taiwan would really make things difficult."

The guy acutely aware of that is Xi Jinping, who would like to backstab Trump on NK, but NK fully nuclear means Taiwan nuclear, Japan nuclear, and others.  Xi is really in a tougher spot than Trump or Un.  He doesn't like that his best option in his own best interest is to support Trump 100% on NK and cave on the whole trade war at the same time.

Look for more conciliatory sounds to come out of China soon IMHO.

[Crafty_Dog]

I too was struck by that part of the article.  Very interesting!

Nuclear Taiwan?!?  The mind boggles at the implications of even the threat of this 

[G M]

If I was Taiwan, I might try cultivating a deal with a small country in the middle east for one of their Dolphin class subs, especially one with all the standard munitions.

As soon as it was operational, Taiwan could declare independence.

[Crafty_Dog]

Now there is a very crafty idea  , , ,

[ccp]

Does Lebanon have subs?   

Maybe one country in the New World should do it.

[Crafty_Dog]

Japan: Coast Guard May Increase Presence in Far-Flung Islands
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What Happened: Japan's coast guard is planning to expand its activities in the Ogasawara Islands to curb encroachments by foreign fishing vessels, The Japan Times reported July 19, citing an anonymous government official. The islands are about a 1,000 kilometers (620 miles) south of Tokyo.

Why It Matters: China's increasing maritime presence in Japan's near abroad poses a threat to its outlying islands and territorial claims. As Japan moves to boost its maritime self-defense forces, the coast guard is a key tool to shore up its presence in these far-flung regions.

Background: As China continues to assert itself in the waters around Japan, Tokyo is taking steps to counteract encroachment into its waters and challenge Beijing's attempts to assert dominance in the region. 

Read More:

    Understanding the China-Japan Island Conflict (July 5, 2018)
    China's Navy Prepares to Close the Gap on the U.S. (May 11, 2018)
    Understanding the China-Japan Island Conflict (Sept. 25, 2012)

[ccp]

one position paper makes the argument:

https://pjmedia.com/spengler/a-letter-to-larry-kudlow-you-need-a-different-china-strategy/

[Crafty_Dog]

That is a very good piece.

[G M]

That is a very good piece.

Spengler is very good.

[DougMacG]

one position paper makes the argument:

https://pjmedia.com/spengler/a-letter-to-larry-kudlow-you-need-a-different-china-strategy/

Some comments on this:

It is good perspective for us to know that the US is a smaller market for China than the rest of Asia. We are not their largest market and Chinese exports to the US are less than 15% of their economy,. But still, they are 8 times more dependent on exports to us than we are on exports to them and loss of their second largest market would still be economically and politically catastrophic to them, IMHO.

Their axis of alliance with other countries in Asia and elsewhere is not so perfect either. We are not the only country threatened by them.

Central planning in technology may have some benefits, but as the article admits, it also has pitfalls.

Our emphasis in software may be missing some research in physics that we should be doing but all the self-made billionaires that I know, one, think the future is in software. Take the top-of-the-line Tesla for an example of what can soon be done in many many lower-end products. It is essentially a software driven vehicle. Software require security and support, not as easily stolen as hardware.

The gpf rumor post, even if the details are false, contradicts the widely believed, perfect strength of Xi and China. I don't happen to believe that their growth rate can tumble and their stock market can crash without internal consequence, even in a dictatorial regime.

I opposed using tariffs and trade war as the tactic to break down China's barriers and technology theft, but that is where we are.

If Trump blinks first right now, where are we in the technology theft and trade fight with China?

All these critics of the tariffs and trade war including myself need to be challenged as to what is the better way of achieving this? Working from memory with my computer down, Spengler links a better way of competing which is a 2016 article that we should essentially lower corporate tax rates and make research an immediate business expense. I believe we did. We made the US more competitive through deregulation first and tax reform econd prior to launching this trade offencive. I suggested one more tax move on that thread, but we are mostly negotiating from a position of strength.

He also calls for more federal spending on research and development. I have reservations about that. For one thing, look at the MIT class list, foreign names and foreign students.. What is the security that keeps any of our research developments in our country or steers them to the right companies, and who are the right companies that deserve the crony benefits of giant government investment? That stirs up all kinds of other problems.

The question has been called with these allies and enemies, what is the playing field of the future going to look like?

Trump needs to say in every sentence, in every speech, and in every tweet that the end game in all this is free trade with no tariffs. This tit-for-tat tariffs game is only a tactic to get on that track.

Ask Canada, ask Europe, and ask China, how much damage should we do to ourselves before we agree on that end?

[Crafty_Dog]

https://www.foreignaffairs.com/articles/asia/2018-07-27/storm-brewing-taiwan-strait

[DougMacG]

http://www.atimes.com/article/australia-charts-its-own-south-china-sea-course/

[DougMacG]

http://www.atimes.com/chinas-new-woes-unravel-xis-personality-cult/

Official propaganda admits:
"a slight weakening was spotted in June in industrial output and investment, and worries have been on the rise that escalating trade tensions could bite into the economy in the future.”
-----
"In another sign of how the US’s tariffs badly affect China’s economy, it was recently reported that its stock market has been overtaken as the world’s second-biggest by Japan’s bourse."
----
"But, with America’s economy doing well, its stock market faring better than China’s since the trade dispute began and with Trump making peace with the European Union, the US’s biggest trading partner and one of Washington’s closest and strongest allies, America is gaining the upper hand over China and thus is likely to ratchet up its trade war on China."
----
[Doug]  Strangely it's possible that the totalitarian leader for life of China faces more political pressure right now than the u.s. president up against a 95% hostile media and impending midterm elections.

Who will blink first? It certainly doesn't look to Xi that it will be Trump.

[G M]

https://m.theepochtimes.com/chinese-people-hope-powerful-grandpa-trump-ends-the-chinese-communist-party_2613192.html

[G M]

https://forwardobserver.com/infocus-how-trump-intends-to-disrupt-china-and-save-pax-americana/

InFocus: How Trump intends to disrupt Chinese dominance and save Pax Americana
FORWARD OBSERVER DAILYINTELLIGENCE ANALYSIS
By Samuel Culper  Last updated Aug 2, 2018


ADMIN NOTE: InFocus is my opportunity each week to address subscribers with analysis on whatever topic I choose. This week, I discuss a major shift by the world’s only superpower to stave off an aspiring and revisionist global power. This brief will appear in the Strategic Intelligence Summary for 02 August 2018.

 

In Focus: This week I want to provide you with an overview of a major shift happening right now. I don’t think this is getting the attention it deserves. We’ve heard of Chinese ascendancy, their economic expansion, the Asian Export Import bank and the Belt and Road Initiative (which now extends to roads and ports in 60 countries), investment across Asia, Africa, and South America, technological and industrial progress aided by persistent and aggressive espionage against the United States (intellectual property theft to the tune of $200-$300 billion per year, conservatively, for over a decade), their long-term military strategy and growing blue water navy — all the things setting China up to be dominant in the 21st century. Late last year we reported that China is on track to have as many fast attack submarines as there are boats in the entire U.S. Navy. That kind of military rise will allow China to challenge the U.S. in the Pacific and disrupt the established order in southeast Asia — not to mention enable their control of the $5 trillion of trade that passes through the South China Sea each year. That kind of power means that the Chinese will use control of the South China Sea to reward the countries who fall in line with China’s vision and bully those who don’t. Rightly, U.S. allies in Asia are worried as they’re forced to choose between reinforcing long-held strategic partnerships with the U.S. or pivoting to fit into inevitable Chinese dominance. Old news, right? Here’s what I’ve been watching as the U.S. response to disrupt China’s rise to dominate Asia.

Secretary of State Mike Pompeo will be in Singapore this weekend at the annual Association of Southeast Asian Nations (ASEAN) ministerial meeting to discuss, among other things, economic security for ASEAN countries in light of China’s military and economic bullying. U.S. allies like Australia, Japan, Thailand, Vietnam, Singapore, the Philippines, and others have increased defense spending as a result. (Vietnam’s arms imports are up nearly 700 percent in the last decade.) To be sure, no U.S. ally in Asia is capable of confronting China alone and, conservatively, they’re probably 10-20 years behind where they need to be to pose a significant challenge. Around this time last year, Secretary of Defense James Mattis called on ASEAN to be the bulwark against Chinese expansion in the southeast Pacific. That means militarily, economically, diplomatically — every avenue available should be pursued to stop Chinese dominance, according to the strategy. One reason: preventing Chinese dominance is better than trying to topple Chinese dominance. If we want to avoid war, the strategy goes, then we can’t allow China to become so dominant that war is the only choice. But China’s rise to dominance means more than just its military. We’re seeing Australia, Canada, Germany, and other European nations veto Chinese bids to purchase farmland and critical infrastructure in their countries on the grounds of national security. Chinese investment is an enabler of espionage and technology transfers. It’s a big, big deal. (Earlier this year, the U.S. Securities and Exchange Commission blocked a plan for Chinese investors to purchase the Chicago Mercantile Exchange.)

Back in May, U.S. Pacific Command officially changed their name to U.S. Indo-Pacific Command (INDOPACOM). Established in 1947, PACOM’s area of responsibility has traditionally included everything from the U.S. West Coast all the way to central Russia (Arctic), the Middle East, and the waters east of southern Africa. As opposed to a decade ago, INDOPACOM’s job is tying India into the Indo-Pacific Strategy to counter China. Talks are on-going to include Japan as a routine member of U.S.-Indian military exercises and the annual Rim of the Pacific (RIMPAC) — the largest military exercise in the world — included 25 nations this year. Notably present: India. Notably absent: China. (China was disinvited by the Trump administration; although China kept a spy ship off the coast of Hawaii to observe and collect signals intelligence during the exercise.)

Former U.S. PACOM commander Adm. Harry Harris, long speculated to become ambassador to Australia, is actually now the ambassador to South Korea. That’s a lot of military experience for an ambassador position, but it underscores how vitally important that relationship is. Adm. Harris serving in a diplomatic role will have positive effects on achieving U.S. strategic security objectives in the region.

Secretary Pompeo, along with Japanese and Australian officials, recently announced a new trilateral economic investment project for Asia in order to build up the economies of U.S. allies in competition with China. Its direct purpose is to prevent China’s regional dominance. Said Secretary Pompeo: “These funds [$112 million] represent just a down payment on a new era in U.S. economic commitment to peace and prosperity in the Indo-Pacific region… We have never and will never seek domination in the Indo-Pacific, and we will oppose any country that does.”

And that brings us to the export-driven Chinese economy. Early on, the Trump administration reckoned that if it were going to use tariffs to curb Chinese espionage and flatten out the U.S. trade deficit, the time to do that is when the U.S. economy is booming. The U.S. economy grew at 2.2 percent in the first quarter of 2018, followed by 4.1 percent in the second quarter. It could always be revised down, but the Atlanta Federal Reserve published their third quarter estimates at 4.7 percent. The the time to impose tariffs and use a trade war to bring China to the negotiating table is when a growing economy can absorb the downside. And that’s why we’re seeing aggressive tariffs now (the Trump administration may raise tariffs from 10% to 25% on roughly $200 billion of Chinese goods later this month), which is starting to weigh on the Chinese economy.

Despite official numbers from China at 6.7 percent annual growth (year over year from the most recent numbers available), the actual growth might be half of that. We’ve previously covered the trillions in off-the-books debt from the central government to bail out state-owned enterprises, and the private sector may be facing a debt crisis. In the first seven months of 2018, there have been 20 private sector bond defaults. To put that in perspective, there were 20 defaults in all of 2017. This is unlikely to be a result of trade tariffs, but it does underscore two fundamental truths: 1) China has exploitable vulnerabilities, too, and 2) Economic warfare is a central part of China’s war against the U.S., and the Trump administration is willing to meet that threat and expose Chinese weakness. A Tuesday meeting of the Chinese Politburo outlined the health of the Chinese economy and pointed out ‘external challenges’ to growth. The Politburo acknowledges that the Trump administration treats the trade deficit as a national security issue, especially as the Chinese continue to steal intellectual property from U.S. corporations. We have to recognize that, as a former U.S. intelligence official put it, China is at a cold war with the United States. The U.S. government under the Trump administration is no longer turning a blind eye.

Previous administrations did little to curb the trade deficit because, starting under Bill Clinton and George W. Bush, the belief was that China’s economic rise would force it to adopt more open and democratic governance. Wrong. And then the Obama administration followed that line of thinking. In 2011, Obama met with then-president Hu Jintao and said,“There has been an evolution in China over the last 30 years since the first normalization of relations between the United States and China. And my expectation is that 30 years from now we will have seen further evolution and further change.” There are financial talking heads like Jim Cramer, who said on his “Mad Money” show on CNBC several months ago: “Sure, the Chinese may steal our trade secrets. Yes, they take our manufacturing jobs, but boy, oh boy, do our companies make money there. Starbucks is huge in China. FedEx is the shipping company of choice for their exports,” so of course U.S. corporations doing business there have a vested financial interest in allowing China to operate however it wants — just as long as they get access to the Chinese economy. And so for eight years, Obama did basically nothing, either to retaliate against Chinese theft or to make America more competitive. In that same 2011 speech, Obama went so far as to defend China, saying: “China has a different political system than we do. China is at a different stage of development than we are. We come from very different cultures with very different histories.” China took that as a signal to continue what they were doing because, hey, we just have a different culture and that’s okay. Treating China for eight long years as a developing democratic peer instead of an economic and military competitor was extremely short-sighted, and America continues to pay the price for that oversight. For all the hand-wringing over the demise of the post-1945 international order, few will publicly acknowledge that the decline of that “order” actually began under Obama when China started re-writing the rules in Asia.

And I should mention again that last month, Chinese officials approached the European Union to strike a trade deal that would drive a wedge between the EU and the United States. Chinese diplomats proposed a deal to jointly wage action against the U.S. at the World Trade Organization, and sought trade deals that would re-align European interests with China’s future. EU officials, of course, politely declined the alliance. But that’s the kind of power China wants to yield; they want to create their own world order and shape global politics in the image of China. That’s a bad thing for Americans but that’s a world the next generation risks inheriting. That’s why I’ve described President Trump’s job as “saving Pax Americana”. (InFocus; Strategic Intelligence Summary for 23 March 2018) We’ll see if he can do it without going to war, either at home or abroad.

 

Always Out Front,

Samuel Culper

 

You can receive our intelligence reporting and stay on top of what’s going on at home and in the world with expert analysis from former special operations and intelligence professionals.

[DougMacG]

https://m.theepochtimes.com/chinese-people-hope-powerful-grandpa-trump-ends-the-chinese-communist-party_2613192.html

"they think Trump can achieve more than just a “Da Ye,” by bringing about political changes through economic means."


People forget, that is why we opened up economically to China.

Will it work for a trump? I don't know, but shaking up the status quo is part of the process.

[DougMacG]

"Chinese officials approached the European Union to strike a trade deal that would drive a wedge between the EU and the United States. Chinese diplomats proposed a deal to jointly wage action against the U.S. at the World Trade Organization, and sought trade deals that would re-align European interests with China’s future. EU officials, of course, politely declined the alliance."

As mentioned on the trade thread at the time, that little turn of events was a BFD. It was looking like world versus Trump and now it is world vs China, at least on trade practices.

Also from the article, the Chinese growth rate might be half of what the propagandists say it is. Everything measurable, like their currency and stock market, spells trouble.

[ccp]

in some disarry over Trump :

https://www.breitbart.com/national-security/2018/08/09/trade-war-with-u-s-opens-rift-in-chinese-leadership/

They are getting Trump hysteria syndrome too.

[G M]

China's power structure is very brittle. A hard enough hit could shatter things. However, It could lead to desperate acts as well.

[Crafty_Dog]

Well, although Breitbart has upped its game since getting rid of Bannon (e.g. with Caroline Glick) it still is quite far from a serious source IMHO.

[Crafty_Dog]

Aug. 17, 2018
By Jacob L. Shapiro
Tonga, a New Ally in the Fight Against China's Debt Trap


The small island nation doesn’t want to pay back the money it owes Beijing. Nor do it’s neighbors.


Tonga, a small island nation with a population of just 107,000 and GDP of $426 million, has found itself at the center of the power struggle between China and the West in the South Pacific. The country is heavily indebted to Beijing – to the tune of 24 percent of GDP – and the first payment on a loan it took out a decade ago is due next month. But it’s trying to delay the payment as long as possible, or even to avoid it completely, by banding together with its South Pacific neighbors to pressure China into forgiving the debt it holds over islands in the region. Perhaps most important, it’s being egged on by New Zealand, which over the past few months has joined Australia to try to reduce China’s economic leverage in the South Pacific.

In 2008 and 2010, Tonga took out loans from the Export-Import Bank of China totaling approximately $120 million. Since then, it has been avoiding repayment. The first payments on the 2008 loan were due in 2013. At the time, Tonga asked China to convert the loan into a grant, but China refused. $120 million may not seem like much to trifle over, especially if you are the world’s second-largest economy, but Chinese loans to Tonga are part of a much larger Chinese strategy to entrap South Pacific nations with debt. Between 2006 and 2016, China lent more than $2.2 billion to countries in the South Pacific. Letting Tonga off the hook would have set a bad precedent and, more important, eliminated China’s leverage – which was the point of the loan in the first place.


 

(click to enlarge)


It was only after the International Monetary Fund intervened that China agreed to a five-year grace period on repayment. That grace period is up in September, and now Tonga is once again trying to get out of repaying its Chinese debt – this time, by enlisting the help of its neighbors. In advance of next month’s Pacific Islands Forum leaders’ summit in Nauru, PIF foreign ministers met in Samoa on Aug. 10. In an interview on the sidelines of that summit, published by the Samoa Observer this week, Tongan Prime Minister Akilisi Pohiva said that at next month’s meeting, he would urge all Pacific island nations to sign a statement asking China to forgive billions in debt incurred by countries in the region.

Then, on Aug. 16, New Zealand Radio reported that New Zealand’s foreign minister had made the same suggestion at the foreign ministers’ meeting last week. (It was unclear whether New Zealand was encouraging Tonga to raise the issue or merely agreeing to the Tongan proposal.) The same day, Tonga’s prime minister doubled down on his position in an interview with the Australian Broadcasting Corporation. He told ABC that Tonga was not the only country facing this issue and that only if all the region’s nations banded together might China agree to waive repayments. This suggests Australia and New Zealand are either encouraging Tonga or tacitly supporting it.
At the moment, Tonga doesn’t seem willing to simply default on its debt to China. Last month, the Tongan government confirmed that it would begin making payments to Beijing in September – totaling roughly $6 million, according to the prime minister. The Tongan government budget, published on June 30, accounts for these payments and indicates that it will see a budget deficit of $5 million next year as a result. Notably, the five-year grace period China agreed to in 2013 did not change the 20-year maturity of the loans, which means Tonga’s payments will be significantly larger than they would have been in 2013. (At that time, they would have amounted to roughly 17 percent of government revenue.)

It’s unclear whether PIF nations will decide to confront China at next month’s summit. Either way, it’ll be a busy meeting. Rumors have already been circulating that members plan to expand the scope of their security cooperation, with Australia and New Zealand leading the charge for a better framework to help manage “emerging threats.” China hopes to increase its leverage over a number of Asian countries through debt, but the goodwill that money engenders evaporates when a lender comes to collect. If China forgives the debt, it will look weak. If it stands firm, it will look unsympathetic. Australia and New Zealand, on the other hand, must ensure unanimity among PIF nations – if even one country breaks ranks, Beijing can consider its strategy a success. In this normally sleepy part of the world, the repayment of a relatively small sum of money in a relatively insignificant island nation smaller than College Station, Texas, has become part of a power tussle between China and the West for the South Pacific.

[Crafty_Dog]

China-U.S. relations continue to flounder. The public comment period on new U.S. tariffs against Chinese imports ended Thursday. U.S. President Donald Trump was quick to tell the media that an additional $267 billion worth of tariffs might be levied at any time, depending on China’s actions. There’s little to suggest China will bend. China did not think Trump would move forward with a serious trade war, but it has recovered from the initial shock and looks prepared to stand its ground. Besides the economic measures to give Beijing greater control, China continues to pursue its foreign policy objectives as well. It’s no coincidence that on the same day Trump threatened more tariffs, China announced its president had accepted an invitation from Russia to attend the upcoming Eastern Economic Forum in Vladivostok. Meanwhile, China hosted a South Korean envoy on Saturday, a day after South Korea’s president said he hoped to declare an end to the Korean War by the end of the year. Those tariffs are likely coming sooner rather than later.

[Crafty_Dog]

https://www.bloomberg.com/view/articles/2018-09-30/china-should-heed-mahathir-mohamad-s-belt-and-road-warnings?utm_content=view&cmpid=socialflow-facebook-view&utm_campaign=socialflow-organic&utm_source=facebook&utm_medium=social

[Crafty_Dog]

second post

Oct 2, 2018 | 09:00 GMT
7 mins read
Taiwan Confronts the Costs of Economic Integration With Mainland China


    Taiwanese electronic firms are still more advanced than mainland China's in developing most cutting-edge technologies, but they are increasingly linked to mainland supply chains.
    This integration could help Beijing move up the production value chains, compromising Taiwan's competitive advantage.
    U.S.-China trade tensions will likely increase production costs and push Taiwanese-owned, low-end manufacturing companies to move away from China and into Southeast Asian states.
    Though Taiwan will continue to struggle to form regional, multilateral free trade agreements, it could see more success pursuing bilateral deals with the mainland's biggest rivals.

Taiwan is caught in the middle of the escalating trade war and larger strategic competition between mainland China and the United States. And the clash is threatening the self-governing island's export- and tech-oriented economy, which relies heavily on the mainland's supply chains for assembly, export opportunities and market access. (This is particularly true for its electronic and semiconductor industries, which together account for about 25 percent of the island's gross domestic product.)

The Big Picture

The trade tensions between China and the United States are unsettling global supply chains. This disruption will have an impact on Taiwanese businesses, many of which are closely linked with the mainland. Combined with Beijing's increasing use of coercive tactics against Taipei since Taiwanese President Tsai Ing-wen took office, these issues are driving Taiwan to diversify its economy away from mainland China.

Adding to Taiwan's economic troubles is Beijing's two-pronged campaign to diplomatically isolate the island and poach its businesses and talent, all in the hopes of eventual reunification. Together, these threats are increasing Taipei's desire to rely less on the mainland's economy, to diversify its trade and investment relationships with its neighbors, particularly India and those in Southeast Asia, and to establish more free trade agreements. In the past, these efforts have had mixed results, but the current economic and strategic pressure will likely harden Taipei's resolve in the coming months.

Deepening Connections

Over the past two decades, disputes over sovereignty have contributed to a volatile political relationship between Taiwan and mainland China. But at the same time, trade and investment links between the two have grown. Taiwanese investments into the mainland have steadily increased since Beijing opened up access in the early 1990s. Because of a similar culture and language, and the mainland's huge market potential and cheap labor, many capital-rich Taiwanese businesses relocated to the mainland. Today, China accounts for over 40 percent of Taiwan's exports, of which 80 percent are intermediary goods that are assembled in China before being sold domestically or exported.

These developments have had the added effect of nurturing China's economy during its reform and transformation era. The Taiwanese business community not only serves as a top capital source for once cash-strapped China but has also become an important means through which Beijing could influence the island and forge cross-strait connections.

Graph Showing Taiwanese Outbound Investment

And as such links grew, Taiwan found it had few options besides mainland markets and production. The island's economy was plagued by years of stagnation, low wages and productivity throughout the 2000s, and it continues to face high-tech competitors in South Korea. Indeed, during the global financial crisis of the late 2000s, former Taiwanese President Ma Ying-jeou's administration removed a host of restrictions on investment in key high-tech sectors on the mainland, contributing to an even heavier dependence on the mainland economy and creating new cross-strait supply chains in those industries.

As Taiwanese electronics firms outsource to mainland China, they are keeping higher value-added work — such as the development of semiconductors, chips and other key electronic components — at home. But a significant portion of these components are supplied to Chinese, Taiwanese or foreign firms in China. As much as 90 percent of Taiwanese-branded computers, laptops and mobile phones are produced outside the country, with a majority being produced in mainland China.

The Consequences of Linking Supply Chains

While the mainland and Taiwan have both benefited from their interconnectedness in economic terms, the relationship has spurred increasing debate within Taiwan about its impact on the island's de facto independence. The mainland's relatively high-skill, low-cost labor and integrated supply chains offer Taiwanese businesses competitive advantages, but they also open up the opportunity for China to interfere with Taiwan's internal politics and, in a more extreme scenario, to challenge its industrial development.

Beijing's ultimate imperative is reunification, so it has been careful in applying serious economic pressure on Taiwanese businesses on the mainland. But it has increasingly leveraged its economic influence to try to shape Taiwan's internal politics in its favor, as it did during Taiwan's presidential election in 2012.

Moreover, a heavy reliance on overseas production is eroding the Taiwanese incentive to innovate and allowing mainland competitors to gain knowledge as China pushes to move up the value chain. This drive threatens Taiwan's competitive advantage in lower-end technology sectors. In particular, Beijing has been moving aggressively to develop a more self-reliant semiconductor industry, as outlined in its signature Made in China 2025 project.

These developments could have several implications for Taiwan. China has ramped up its efforts to absorb talent and technological capability, and Taiwan is a target due to Beijing's reunification goal and its strategic intention to move up the semiconductor value chain. And Beijing's capital- and state-led efforts are expected to boost China's tech industry, putting Taiwanese companies in a race to climb the ladder of cutting-edge technology.

Of course, as the ZTE case has illustrated, Beijing is still perhaps a decade away from its goal of achieving greater technological independence, while Taiwan holds a leading position in the most advanced technologies, such as integrated circuit design, fabless integrated circuits and foundries. But the mainland's efforts to climb the value chain with products such as solar panels and smartphones have rapidly eroded Taipei's advantages in those global markets.

Taiwan Strives to Diversify

As the U.S.-China trade war threatens to disrupt supply chains and as China amplifies cross-strait tensions while growing more technologically competitive, Taiwan has urgently emphasized the development of economic relations beyond the mainland, which the island has pursued in one form or another for the past several decades.

Since taking office in 2016, Tsai has implemented her "New Southbound Policy" to ramp up connections with and investment in Southeast Asian states and India — an extension of similar goals held by two previous administrations. Her government has also accelerated its longtime quest for free trade agreements, hoping to better integrate Taiwan's economy on a global level. This was a goal in the 2000s as well, as the proliferation of regional free trade agreements threatened to undermine Taiwan's competitive advantage in the Asia-Pacific.

But the previous diversification policies didn't yield much progress, since Beijing's ever-growing and outperforming economy meant China remained the most lucrative place for investment. And Taiwan's attempts to join multilateral free trade agreements, such as the Regional Comprehensive Economic Partnership between the 10 members of the Association of Southeast Asian Nations (ASEAN) and the Trans-Pacific Partnership, didn't yield much success due to the island's political status and the concerns of some countries that they would risk backlash from Beijing.

In the two years since Tsai took office, Taiwanese investment in Southeast Asia has moderately picked up but still fell short of what the island was investing in those regions in the late 1990s and early 2010s. Most of the current investments are concentrated in the retail and financial sectors, indicating that they are primarily oriented to capture those growing markets instead of directing markets away from mainland China. Moreover, Taiwan has so far made few electronics investments in Southeast Asia (with a few in Malaysia and Indonesia and some most recently in Thailand). After two decades of developing sophisticated, well-functioning supply chains for items such as semiconductors, Taiwanese businesses are less than eager to relocate and abandon the growing domestic Chinese market.

What's Different Now

But Tsai's conviction of the need to diversify Taiwan's economy is strong, and things may change this time around. Many countries in the ASEAN, such as Vietnam, Indonesia and the Philippines, are developing strong economies of their own, working to move up the value chain and moving factories out of China. Inspired by their success, Taipei will likely work hard to keep up. Additionally, even as Taiwan remains an unlikely candidate for regional free trade agreements in the short term, its quest for bilateral free trade agreements with the United States and, to some extent, India may get new momentum as Washington challenges the current state of cross-strait relations.

All these developments, combined with the protracted U.S.-China strategic competition that could disrupt critical supply chains and with a mainland government that is increasingly challenging Taiwan's autonomy, will drive Taipei to focus on its goal of disengaging its economy from the mainland, despite the barriers to that objective.

[Crafty_Dog]

second post

The Big Picture

In the context of broad strategic competition between China and the United States, the United States was expected to solidify its naval presence in the South China Sea and to work with allies and periphery states to balance against China. While Beijing is improving relations with its neighbors, it appears to be taking a hard-line response to countering the United States.

See Asia-Pacific: Among Great Powers
What Happened

A Chinese warship almost struck a U.S. destroyer conducting a freedom of navigation patrol near the disputed Spratly Islands in the South China Sea, the U.S. Pacific Fleet announced Oct. 1. The United States said a Chinese destroyer came within 41 meters (45 yards) of the USS Decatur on Sept. 30, forcing the U.S. warship to take evasive maneuvers to avoid a collision. The Chinese Defense Ministry blamed the United States for the incident, claiming it had violated China's waters and threatened its security and sovereignty.

The incident marked an aggressive departure from previous Chinese responses to U.S. freedom of navigation operations (FONOPs) in the South China Sea. Over the past few years, Chinese ships have shadowed U.S. vessels conducting FONOPs in the region, but they had never maneuvered close enough to risk collision.

Why It Matters

With the United States taking an increasingly hard-line approach against China — including but not limited to placing tariffs on Chinese goods, sanctioning Chinese entities and ramping up arms exports to Taiwan — Beijing is likely wondering whether a state of significantly deteriorated relations with the United States is the new normal or whether it can expect things to improve eventually. China also has to consider how to respond to the U.S. pressure. Beijing thus far has taken a largely tit-for-tat approach by placing its own tariffs on U.S. goods, refusing port visits to U.S. warships and downgrading military-to-military ties with the United States.

The Chinese interception of the USS Decatur therefore should be seen through the context of a potential Chinese response to U.S. pressure. It's not yet known whether this incident is a one-off attempt by China to send a message or whether it marks a new level in China's own response to U.S. moves under the administration of President Donald Trump. Watching for China's future responses to U.S. FONOPs will help shed light on the matter.

In the past, China has relied on paramilitary vessels to harass U.S. warships operating in the South China Sea. Sending a warship to challenge the Decatur clearly was a deliberate decision intended to highlight China's assertive position on the FONOP.

The incident came as the United States works to standardize FONOPs in the South China Sea and to build defense relationships with claimant states on the Chinese periphery. Part of the reason why China has adopted a high-visibility approach to the interception of the Decatur could also be linked to Beijing's growing apprehension over the rising number of world navies that have fixed their sights on pushing against its hold on the South China Sea. While no navy has taken the same measures as the United States has with its regular FONOPs, the United Kingdom, France, Japan and Australia have increasingly dispatched their warships to the South China Sea while highlighting the need to counter China's claims in the region.

[Crafty_Dog]

https://www.bloomberg.com/news/features/2018-10-04/the-big-hack-how-china-used-a-tiny-chip-to-infiltrate-america-s-top-companies

[rickn]

It's a very scary situation because SuperMicro is an ODM that makes the white box servers for Amazon and Apple.  So, the chip can bypass the normal security precautions that are in standalone switches and other boxes located in data centers. 

Until recently, in data centers, all of the security was on the perimeter of the site to guard against the infiltration of bad packets from external sources.  And the secure boot authentication systems on most boxes from personal computers to large servers would also not prevent this threat because the device would boot with the spy chip inside.

In the last few years, however, the security protocols inside data centers have changed from an emphasis upon preventing external threats to a system more like a large ship's ability to cordon off bad areas with water-tight bulkheads.  So, the data center can take offline the affected servers and run everything by going around quarantined areas. 

The issue is whether those chips could reach into the entire packet flow of the networks in which they were installed or whether they just intercepted packet flows that were routed through the specific servers in which the chips were installed.

On a less serious note:  wonder if DiFi's gofer was the leader of this ring?

[Crafty_Dog]

https://thehill.com/policy/national-security/410484-trump-expands-anti-china-effort?userid=188403

[Crafty_Dog]

Malaysia: Beijing Takes a Major Step Toward Naval Cooperation in Southeast Asia
(Stratfor)

The Big Picture

Amid the intensifying great power competition between China and the United States, both countries have made strides to strengthen their influence in the disputed waters of the South China Sea. In addition to building up its presence on features it claims in the waters, China has taken a more assertive approach to countering U.S. freedom of navigation operations. The competition between the powers has increased tensions in the region, as evidenced by a dangerous encounter recently between their navies near a Chinese-controlled feature in the Spratly Islands.


What Happened

China, Malaysia and Thailand will hold the nine-day Peace and Friendship 2018 joint naval exercise along the Strait of Malacca starting Oct. 20. The drill will be held in the waters off Malaysia's Port Dickson and Klang. China announced Oct. 14 that it will send a combination of three destroyers and frigates, plus two shipborne helicopters, three Il-76 transport aircraft and 692 service personnel to participate. A statement by the Chinese Defense Ministry noted that the exercise was intended to "demonstrate the common will ... to maintain peace and stability in the South China Sea region" and is not intended to target any country.

Why It Matters

The exercise represents a major step by Beijing as it seeks to increase cooperation with other Southeast Asian states in response to the growing U.S. naval posture in the South China Sea. The United States has assembled a loose security bloc of regional allies and partners such as Japan, Australia and increasingly Vietnam as it works to balance against China's maritime assertiveness in the South China Sea and the Taiwan Strait.

In response, China has made efforts to increase cooperation on a number of fronts with members of the Association of Southeast Asian Nations (ASEAN). It has been working, for example, with the Philippines to jointly develop resource management and energy exploration efforts in disputed waters near the island nation. It has also taken steps to build trust at the multilateral level. Over the past two years, China and the ASEAN have adopted an agreement on the Code for Unplanned Encounters at Sea and a maritime emergency hotline. They also have moved forward on the long-stalled negotiation over the code of conduct in the South China Sea.

While the upcoming exercises are not the first for China in the strategic Strait of Malacca (it has participated in staged escort exercises with Malaysia in the area), the latest drills show Beijing's interest in expanding multilateral defense cooperation. China and ASEAN members' naval forces staged a computer-simulated drill in early August at Singapore's Changi Naval Base, and plans are being made to hold another joint naval drill off China's southeast coast near Zhanjiang.

For the most part, ASEAN states have welcomed China's outreach as well as the increased U.S. focus in the region, and instead of choosing sides, some have tried to take advantage of the security and economic benefits offered by each by playing one power off the other. However, as the great power competition between them intensifies, this strategy could prove untenable if U.S.-Chinese relations sour.

[Crafty_Dog]

Oct. 16, 2018
By Phillip Orchard


The US Plays the Long Game in the South China Sea


Washington is content to accept the status quo in the region, so long as Beijing does as well.


In the past couple weeks, Washington’s tone on China has gotten noticeably tougher. In a speech Oct. 4, U.S. Vice President Mike Pence outlined a litany of grievances with China – from trade to technology theft to Beijing’s purported attempts to put the political hurt on Donald Trump. He didn’t shy away from the areas where U.S. and Chinese military ambitions are bumping up against each other, either, giving special attention to Chinese expansionism in the South and East China seas. This followed a Sept. 24 report in Axios, in which unnamed White House officials touted an impending administrationwide pressure campaign against China, involving the departments of Treasury, Commerce and Defense. And on the same day as Pence’s speech, unnamed Pentagon officials told CNN that the U.S. Navy was preparing to do its part, formulating plans to carry out a “global show of force” to counter Chinese military actions, starting next month.

U.S. activity in waters China claims as its own has indeed picked up in recent weeks. The U.S. has sent warships past and warplanes over the disputed islands China occupies and conducted drills in Indo-Pacific waters with a range of allies, including Japan and even the United Kingdom. On Sept. 30, a Chinese warship acted in an “unsafe and unprofessional” manner, according to the Pentagon, coming within 150 feet (45 meters) of the USS Decatur during a U.S. freedom of navigation operation. But while the U.S. is clearly trying to squeeze China at nearly all its pressure points, the South China Sea is unlikely to play a front-line role in this effort. The U.S. has neither the interest nor the ability to link the South China Sea to its other points of contention with Beijing. Posturing on the high seas won’t give way to a real crisis until China determines it can no longer live with the status quo.

More Bark Than Bite

Until the past few months, the South China Sea had received relatively scant attention from the Trump administration. There have been the occasional warnings to Beijing that the U.S. will no longer tolerate its militarization of disputed islands. And there have been the periodic freedom of navigation operations, or FONOPs, near China-held reefs in contested parts of the Spratly and Paracel archipelagos. As under past administrations, however, these have amounted to far more bark than bite – certainly nothing substantive enough to limit Beijing’s continuing buildup in the waters.

The dirty little secret is the U.S. doesn’t actually care all that much about checking China’s expansion in the South China Sea. The core U.S. interests in the waters are keeping maritime traffic – whether commercial or naval – flowing and upholding international maritime law and norms, but also avoiding getting dragged into a war not of its choosing. So long as the U.S. can cut off Chinese maritime traffic in chokepoints along the first island chain and in the Strait of Malacca, Washington will be able to bring Beijing to its knees. China has near-zero interest in testing the U.S. on this point by cutting off maritime trade in the South China Sea – even in the unlikely event that it finds reason to do so – or by trying to push the U.S. from the region by force. Attempting to shut down sea lanes would be an act of desperation. It’s not the kind of thing China could threaten to do to gain leverage against the U.S. in scenarios short of war.

To be sure, China’s placement of anti-ship and anti-air missiles, naval assets, and warplanes on its artificial islands off the coasts of Vietnam, the Philippines and Malaysia – in combination with its onshore missiles, air power, and growing space, cyber and undersea capabilities – could make it harder for the U.S. to operate freely in China-claimed waters. They are also making it easier for Beijing to dictate terms for what its weaker neighbors do there (such as drilling or fishing), posing a credibility problem for the U.S. among its regional allies. Dislodging the Chinese will get only more difficult as their missile capabilities and ranges improve.


 


(click to enlarge)
But on the whole, the U.S. is operating from a position of strength. The islands would not last long in an all-out war with the U.S. if push came to shove, and they won’t solve the fundamental problem posed by U.S. naval strength around the chokepoints anytime soon. The fact that the U.S. has allies like Australia and, most important, Japan with major interests in keeping the waters open, while China lacks any major security partners, only bolsters the U.S. position. Washington can afford to play a long game – one that allows it to avoid the messy business of refereeing territorial disputes among regional states – centered on constructing a multilateral coalition to contain Chinese assertiveness, helping local countries to develop their own capabilities, and, if necessary, trying to blunt China’s military trajectory by depriving it of the riches needed to continue its buildup.

Challenging China

That the U.S. is now apparently planning a show of force in the South and East China seas does not reflect a shift in its strategy. Rather, the White House has simply decided that it’s time to challenge China on multiple fronts to try to alter its course. In reality, though, this campaign is focused primarily on the economic front.
The main problem for the U.S. is that it has few options, short of a direct conflict, for ramping up pressure in the South China Sea and thus little leverage to gain by trying to link security and trade. Freedom of navigation operations are important for reinforcing international law and maritime norms, and they give the U.S. the appearance of doing something in the disputed waters, but they are not an actual deterrent and never were meant to be. They don’t generate leverage or, technically, even assert that the U.S. objects to China’s occupying the disputed reefs. They have not yet altered Beijing’s strategy or behavior in any discernible way. Neither have occasional exercises in the South China Sea.


 


(click to enlarge)

China sees its islands as an integral part of its anti-access/area denial strategy. To get the Chinese to vacate them, Washington would need to convince Beijing that the U.S. is ready to remove it by force. War with a nuclear power over the South China Sea would be a costly and ill-conceived way for the U.S. to execute a strategy aimed at containing China primarily by sapping the country of its economic dynamism. China won’t swap its security for trade concessions, and the U.S. won’t offer this deal anyway.
Short of force, the U.S. has some small ways it can attach costs to China’s actions in the South China Sea. For starters, it can boost its security assistance to Southeast Asian littoral states and better equip them to defend themselves. It also wouldn’t be surprising if the U.S. were to sanction Chinese firms involved in island-building. Still, neither of these actions would do much to deter Beijing and, again, neither is important enough to either side to really factor into the trade fight.

More of the Same

And so, we’re probably looking at more of the same largely symbolic measures in the South China Sea that we’ve been seeing there in fits and starts over the past decade. Pence hinted that this was the case in his speech, saying more or less what the U.S. always says about the South China Sea: “The United States Navy will continue to fly, sail and operate wherever international law allows and our national interests demand.” That means more FONOPs, more exercises, more shadowboxing. These won’t do much directly to alter the status quo in the South China Sea. But that’s not to say things can’t get messy.

Even if the U.S. moves are mostly symbolic, they still require a commensurate response from Beijing for two reasons. The first is that the Communist Party has tied its political legitimacy to the twin narratives that the disputed waters are indisputably China’s and that only unquestioned party rule can make the country powerful enough to reassert control over the area and protect China from the imperial powers that historically have humiliated it. It can try to censor coverage of U.S. shows of force in the waters to contain pressure from nationalists and the People’s Liberation Army, but it cannot go meekly into the night.

The second reason relates to China’s strategic imperatives: To blow a hole in the U.S. containment line, Beijing needs to convince countries along the first island chain, particularly the Philippines and Taiwan, that Chinese dominance over its littoral waters is a fait accompli. In other words, China needs to persuade these states that while the U.S. may parade its warships around the South China Sea, it won’t actually come to their defense in a crisis, much less guard their access to resources in their exclusive economic zones. If littoral states want oil, fish, and a security and economic benefactor whose regional interests will never waver, they’re better off ejecting the Americans and throwing their lot in with the Middle Kingdom, according to Beijing. Offers of aid and investment make that pill easier to swallow.


 
(click to enlarge)

For China to satisfy its domestic political imperatives, responding merely with its own largely symbolic measures, such as drills, may be sufficient. Shadowboxing can easily be spun in state media as daring displays of resolve and deterrence. Sending a forceful message to Southeast Asia, on the other hand, is a somewhat different matter. To expose Washington’s security guarantees as hollow, or at least tailored to narrow U.S. interests, China needs, at minimum, to stay its recent course. That means denying regional states access to their littoral resources and building fortresses on the islands they claim – and even this risks stoking nationalist political pressure in the countries that could compel their governments to try to take matters into their own hands. If Beijing thinks it needs a bigger play to drive its message home in the littoral states, it may try to call the U.S. bluff elsewhere – say, around the Philippine-claimed Scarborough Shoal, potential Chinese reclamation of which the Obama administration set as a red line in 2016.

In short, the U.S. is content with the way things are in the South China Sea. It doesn’t really need to escalate matters there to contain China comprehensively, and it couldn’t do so anyway without going to war. China can’t live with the status quo forever; eventually it will need to break out of the box geography and U.S. naval power have put it in. But because the U.S. has no pressing reason to threaten China’s trade access, Beijing can bide its time. If it makes a move on a flashpoint like the Scarborough Shoal, it will do so because it’s reasonably certain that it is indeed calling Washington’s bluff. Failing an accident or a gross miscalculation, it’ll just be two sharks circling each other in the South China Sea, with little appetite for a fight.

[Crafty_Dog]

•   Two U.S. B-52 bombers flew over disputed parts of the South China Sea, according to the Pentagon.
•   U.S. Secretary of Defense James Mattis met with his Chinese counterpart, Wei Fenghe, in Singapore. Wei is scheduled to meet with Russian Defense Minister Sergei Shoigu on Friday.
•   Beijing is protesting a visit by a U.S. naval research ship to Taiwan.

[Crafty_Dog]

From the Forecast: “Japan is playing a critical role in creating an informal alliance between Japan, India, the U.S. and Australia to combat Chinese ambitions in the South China Sea.”

Update: Turning now to Southeast Asia, we check in on our forecast that Japan, India, Australia and the United States would grow closer as they tried to block China’s expanding influence in the region. (We would be remiss if we did not mention that our forecast for the year missed the level of anti-China activity that would unfold in the South Pacific – for more on that, click here.) This group of powers is still operating under the unfortunate nickname “the Quad,” and while 2018 has not brought any meaningful steps to define how its members will work together or to lay out the specifics of their relationship, each of the four countries has been very active, not just in laying the groundwork for increased cooperation among themselves but also in reaching out to states in Southeast Asia where China’s influence could eventually threaten the balance of power.

Japan and Australia, for instance, both wrapped up military exercises with the Philippines, a country of immense strategic importance to China, and one that seemed to be tilting toward Beijing during the first years of Rodrigo Duterte’s presidency. Japan and India, meanwhile, have reached out to Vietnam, whose prime minister publicly proclaimed his country’s desire for Japan to play a prominent role in the South China Sea. We also note that the Indian navy diverted three ships to offer humanitarian assistance to Indonesia during the recent tsunami – a seemingly innocuous gesture, but exactly the sort of thing that can help to build trust and interoperability between two countries. Like the Philippines, Indonesia is of immense strategic importance because of its location on major maritime trading routes.

It's not all positive news, though. U.S.-India relations have tightened considerably – but not so much that New Delhi is willing to go along with Washington’s oil sanctions against Iran, or to refrain from purchasing S-400 missiles from Russia (a move for which the United States punished China with sanctions recently). And despite the myriad meetings between some of the Quad’s main players – like the meeting of the foreign and defense ministers of Australia and Japan on Oct. 10, which paved the way for Japanese Prime Minister Shinzo Abe’s visit to Australia next month, or the recent meeting between Indian and Australian officials to discuss their strategic relationship – there has not yet been a move to codify the group’s cooperation or more publicly signal its overall intent. The most that has happened is the Quad held a second meeting since its revival, on the sidelines of an Association of Southeast Asian Nations summit in Singapore in June.

That may be simply because higher-profile activities would serve only to threaten China, or it may have more to do with the fact that the four powerful countries of the Quad need no formal alliance to jointly pursue their interest in limiting China in Southeast Asia. Attempting to make a formal alliance out of an informal collaborative relationship may do more harm than good. But then, our forecast did not promise a formalization of the Quad in 2018, but merely more engagement with Asian nations and among the group’s members as a counterbalance to China. Aside from the occasional hiccup in U.S.-India ties, which explains the recent downward trend in the forecast’s performance, we believe overall that the forecast remains on target.


 

[DougMacG]

 “Japan is playing a critical role in creating an informal alliance between Japan, India, the U.S. and Australia to combat Chinese ambitions in the South China Sea.”

Good!  Japan is not China's equal anymore but these countries including the US working together can successfully counter China's overreaches.

Trump should also be playing the Taiwan card more in his trade, South China Sea and NK fights with China, IMHO.

[Crafty_Dog]

The trade war and the damage done. The purchasing managers’ index released in China in October shows that Chinese manufacturing had dropped to 50.2, barely above the 50 point threshold to indicate growth. To be sure, the PMI is an imprecise measurement, but the low figure is still revelatory because it is below what economists had anticipated and, more important, it focuses on the state-owned enterprises and heavy industries that are theoretically less vulnerable to tariffs than private ones. Private manufacturing is probably faring worse. The U.S. has been pressuring China to respond to its invitation to start trade talks. So far, Beijing has declined – it doesn’t think the U.S. is serious about reaching a compromise that China could accept. Data points such as the PMI suggest Beijing may not have much of a choice any longer.

[Crafty_Dog]

What Happened

Enhanced security cooperation between Taiwan and the United States could easily expand as the pair work to balance against China's increased military presence in the Taiwan Strait and the South China Sea. On Nov. 5, Taiwanese Defense Minister Yen Teh-fa told legislators that his government would consider allowing the U.S. Navy access to Taiping Island if Washington requested it. The remark is by no means conclusive, though Yen emphasized that the United States could be granted access for humanitarian or regional security operations if they aligned with Taiwan's interests.

Allowing the United States access to the island would further challenge the status quo at a time when the U.S. Navy is stepping up its presence in the Taiwan Strait. Over the past few months, U.S. warships have twice passed through the Taiwan Strait in a possible attempt to standardize patrols there or even pave the way for an aircraft carrier group to transit through. And in October, a U.S. Navy research ship docked in Taiwan's southern port city of Kaohsiung for refueling. Moreover, Taiwanese media has speculated that U.S. vessels will dock in Taiwan as part of naval exercises that are expected to occur in the region this month. However, U.S. Chief of Naval Operations Adm. John Richardson declined to confirm or deny such a possibility.

Background

Taiping, one of two islands Taiwan controls in the South China Sea, is the largest naturally occurring Spratly Island; 1.4 kilometers long and 400 meters wide (.87 miles and .25 miles, respectively). The island sits 1,600 kilometers away from Taiwan in the South China Sea Basin, and bears strategic importance as an ideal location from which to secure sea lanes and establish a presence in the disputed region. Thanks to its strategic location and resources — Taiping possesses ample fisheries and is the only one of the Spratly Islands with an indigenous supply of fresh water — the island has served as an important logistics base.
Why It Matters

A U.S. military presence on Taiping Island or on Taiwan itself would be a serious provocation for China, which regards Taiwan as a wayward province and views U.S. relations with Taipei as a threat to Chinese sovereignty. Beijing has lodged stern protests against previous dockings and passages, and even threatened military action against Taiwan if a U.S. warship arrived in Kaohsiung. And China is also highly sensitive to the possibility that Taiwan will alter Taiping's status quo. Beijing and Taipei have largely overlapping maritime claims, and China is hoping Taiwan's control over Taiping will buttress its territorial claims in the South China Sea after Beijing attains its desired goal of reunifying Taiwan with mainland China. But while Beijing's hopes are high, its fears are equally strong that Taipei would be unable to defend Taiping against invasion or would allow Chinese rivals such as the United States or Vietnam greater access to Taiping Island.
This map shows some of the competing territorial claims made by China and Taiwan in the South China Sea.

This map shows some of the competing territorial claims made by China and Taiwan in the South China Sea.

But while Beijing sees Taiwan through the lens of its plans in the South China Sea, Taipei views Chinese expansion as its greatest challenge. Taiwan has been working for years to expand its facilities, fortify its infrastructure and increase military exercises to counter China's expanding influence. Chinese military pressure against Taiwan has grown over the past two years, potentially spurring Taiwan's government to view cooperation with the United States as a convenient way to secure its control over Taiping and further prioritize its goal of countering China's military might in the Taiwan Strait. Unlike its predecessors, Taiwan's current government is less concerned with war legacies, and many Taiwanese citizens see little economic value in Taiping, prompting some scholars to even suggest leasing Taiping to the U.S military — an explosive move that would be certain to infuriate Beijing and escalate tensions.

Access to Taiping would give the United States greater mobility in the South China Sea, as well as provide ammunition for rivals such as Vietnam or the Philippines to undermine Beijing's territorial claims. An agreement on U.S. access to the island is by no means finalized, but the perceived challenge would likely prompt China to increase its own military presence in the region and ramp up pressure against Taiwan. If that happens, the animosity between Chinese and U.S. forces in the region will intensify, and close encounters between their respective vessels — and even interceptions — can be expected to increase.

[Crafty_Dog]

I don't really care for the tenor of this analysis, but the subject matter is quite important.


China Looks at U.S. Tech-Limiting Measures and Sees Gunboat Diplomacy
By Scott Stewart
VP of Tactical Analysis, Stratfor



    As China attempts to achieve technological parity for reasons of national security, the U.S. government will continue to deploy a wide array of tools against these efforts, particularly Beijing's attempts to obtain trade secrets illegally.
    These U.S. actions, however, will merely convince Beijing to break its dependence on Western technology by any means possible, since they vividly remind China about how a technologically superior West victimized it during the days of gunboat diplomacy.
    Fearful for its own future in the wake of Washington's actions, Russia will also strive to obtain technology by any means possible.

The last Opium War ended 176 years ago, but Beijing remembers the battle well — particularly the West's penchant for gunboat diplomacy. Memories of Western coercion and blockades have already prompted China to bolster the country's navy and take aggressive steps in the South China Sea to fulfill two of its overriding strategic imperatives: prevent any encroachment on the eastern coast and secure maritime trade routes.

The Big Picture

Like the Cold War, the current great power struggles between the United States on one side and China and Russia on the other will involve every facet of national power: military, economic, legal, diplomatic and intelligence. With both China and Russia seeking technological parity with the West — and willing to use any means necessary to achieve it — the struggle between espionage and counterintelligence agencies to acquire or protect technologies will make for an extremely active competition.



See Echoes of the Cold War

Beijing, however, is now preparing to respond to another type of blockade. Late last month, the U.S. Commerce Department announced that it was adding Fujian Jinhua Integrated Circuit Co. to the list of entities facing restrictions, essentially declaring that the firm poses a significant risk to U.S. national security or foreign policy.  A December 2017 indictment accused the firm of illegally obtaining trade secrets for the production of DRAM chips from U.S. company Micron. With the action, the Commerce Department has barred the export, re-export or transfer of U.S.-origin technology, commodities or software to Fujian Jinhua without a special export license — which the department is unlikely to grant anyone.

The action against Fujian Jinhua is tantamount to a blockade on the company, because Washington is using lawsuits to prevent it from selling its chips in overseas markets and imposing technology transfer bans to prevent it from obtaining the components it needs to produce chips. Because of this, the measures are certain to provoke an emotional response among China's leaders, who will see them as an attack on its future development — and perhaps more fundamentally — its sovereignty. And far from persuading China to desist from its efforts to acquire technology by any means necessary, the robust U.S. action is ikely to only encourage more of it.

In Hot Pursuit of Chinese Companies

Three days after Fujian Jinhua was added to the list on Oct. 29, the U.S. Department of Justice filed a civil suit to prevent the firm from selling DRAM chips made by it or its Taiwanese partner, UMC, inside the United States. The suit also applies to other devices that include chips made by Fujian Jinhua and UMC, meaning that foreign companies that wish to sell to the U.S. market will have to get their DRAM chips elsewhere.

The measures against Fujian Jinhua come amid a raft of recent U.S. efforts to halt technology transfers to China, as well as Beijing's industrial espionage. On Nov. 12, The Wall Street Journal reported that in addition to judicial action to counter Chinese spies, the U.S. government will also use tools such as export controls to combat China's theft of trade secrets from American companies. Then, on Nov. 19, the Commerce Department launched a 30-day public comment period to obtain feedback from the technology sector on legislation that would impose restrictions on the exports of dual-use U.S. technology to China if it could pose a national security risk to the United States.

The Response to a 21st-Century Blockade

Taken together, all the U.S. steps are likely to hit Fujian Jinhua extremely hard. In fact, The Wall Street Journal even suggested that they could kill the company, because it relies on U.S. technology and components to produce its chips. (Compounding the issue, Micron filed a civil lawsuit against Fujian Jinhua in December 2017, which continues to wind its way through the courts. Fujian Jinhua subsequently filed a countersuit in a Chinese civil court in July 2018.) From the U.S. government's perspective, damaging or even destroying Fujian Jinhua for stealing Micron's intellectual property would represent a major victory. Contrastingly for China, Fujian Jinhua's demise would represent a significant blow to the country's efforts to become self-sufficient in semiconductor production, including DRAM chips. As a state-owned enterprise, the firm received $5.7 billion in state funding from the Fujian provincial government to build a production plant for DRAM chips, illustrating the government's focus on the importance of developing the technology.

The U.S. government's proclivity for measures to ban knowledge transfers are, ironically, only going to convince Beijing of the need to accelerate its efforts to end its reliance on Western technology.

But in its rush to obstruct China's efforts to develop domestic technology, the U.S. government's proclivity for measures to ban knowledge transfers are, ironically, only going to convince Beijing of the need to accelerate its efforts to end its reliance on Western technology. And technology transfers are not the only means of ending such dependence — the acquisition of coveted technology by any means necessary is another method of ultimately ensuring that Beijing can fulfill its national security goal of achieving technological parity with the West. Faced with such U.S. measures, the hard-liners who have been urging Chinese intelligence agencies to acquire the technologies on the shopping list associated with the "Made in China 2025" initiative by hook or by crook are now likely to redouble their clandestine efforts.

However, as these efforts increase, Chinese companies and intelligence agencies will naturally need to adjust their tactics. This will be especially true as they target trade secrets that are only available from a small number of companies, which will be on guard after high-profile incidents such as the Micron case and theft attempts by Chinese spies seeking the designs for jet engine components. These efforts will involve the use of every tool in the espionage toolbox, including cyberattacks and the recruitment of human sources.

While some of the recent, highly publicized Chinese espionage efforts may appear amateurish, Western governments and companies would underestimate them at their peril. A variety of Chinese agencies and actors will often conduct simultaneous efforts to collect the desired information or technology using multiple approaches — some of which are more sophisticated than others. Because of this, botched or thwarted efforts should not lull potential targets into a false sense of security, because other, more effective operations using sophisticated tradecraft may already be in motion.

China will also use other tools at its disposal. On DRAM chips, China launched a domestic antitrust investigation in June, alleging that the world's leading producers, SK Hynix, Samsung and Micron — which together control about 95 percent of the DRAM market — had conspired to fix prices. On Nov. 19, the trio's stock prices tumbled after the Financial Times reported that China's investigation was making progress. Needless to say, Chinese officials will have even more incentive to press their antitrust case if Fujian Jinhua suffers as a result of the U.S. measures.
Espionage in the Great Power Struggle

Watching on with great interest is Russia, which has its own list of 77 technologies that it wishes to develop indigenously in order to break its dependency upon the West. Without question, the U.S. government's use of virtual gunboat diplomacy against Fujian Jinhua will strengthen the Kremlin's resolve to ensure that it is not on the receiving end of similar actions in the future — especially given Washington's current sanctions against Moscow. This will also result in increased Russian corporate espionage in concert with the Kremlin's efforts to sow discord within the United States, various European countries and the European Union, as well as between Washington and Brussels.

In the end, great power struggles involve every facet of national power, with the military, diplomatic, legal and commercial angles of the struggle obvious for all to see. But lurking in the shadows, battles between intelligence agencies to procure or protect technology may, in the long run, prove to be every bit as significant as those higher-profile struggles.

[Crafty_Dog]

https://www.usnews.com/news/world/articles/2018-11-21/chinas-aggressive-military-reorganization-prompts-fears-of-conflict?fbclid=IwAR2AeOiXYieCVIXmuRURhd5GPTy730ji_1Cf1YSx0Y3YRoA-7RYDa4qpcV4

[Crafty_Dog]

What the Arrest of Huawei's CFO Means for the U.S.-China Trade War
By Matthew Bey
Senior Global Analyst, Stratfor
Matthew Bey
Matthew Bey
Senior Global Analyst, Stratfor
A woman uses her mobile phone in front of an LED display board for Huawei at the Beijing International Consumer Electronics Expo in Beijing.
(WANG ZHAO/AFP/Getty Images)
Stratfor's geopolitical guidance provides insight on what we're watching out for in the week ahead.
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On Dec. 1, the United States and China agreed to a truce in their trade war, but that same day Canadian authorities arrested the chief financial officer of one of China's most important tech companies, Huawei. Huawei has been the chief target of U.S. pressure on Chinese tech companies, and this new development adds another layer of complication to the already awkward trade negotiations between Beijing and Washington.

What Happened

Canada's Department of Justice announced in a Dec. 5 statement that it had arrested Meng Wanzhou, the chief financial officer of prominent Chinese tech company Huawei, in Vancouver on Dec. 1 at the request of the United States. Meng is the daughter of Huawei founder Ren Zhengfei. According to Canadian Justice Department spokesman Ian Mcleod, Meng is facing extradition to the United States over suspicions that she violated U.S. sanctions on Iran.

Huawei is the world's second-largest manufacturer of smartphones after Samsung and is arguably China's most important hardware technology company. China will likely perceive Meng's arrest as a U.S. strategy to undercut the company, and the impending investigation — especially in the likely event that it expands beyond Meng into a broader investigation of Huawei — is sure to increase tension between Beijing and Washington as the two navigate their trade war over the coming three months.
On the Heels of ZTE

Accusations that Huawei violated U.S. sanctions on Iran have been floating since an earlier sanctions violation investigation into ZTE, another large Chinese hardware company, ended in 2016. the United States released internal ZTE documents in which the company described a large competitor – only called "F7" – skirting U.S. sanctions. F7 has widely been assumed to be a codename for Huawei.

In April of this year, leaks from anonymous U.S. officials suggested that there was already an active criminal investigation into Huawei for violating Iran sanctions. During that time, the United States and China were already tussling over Washington's decision to ban U.S. suppliers from exporting to ZTE in the wake of that company's sanctions violations. (This initially happened in the ZTE case, but it was only after ZTE violated the terms of that settlement by giving bonuses rather than punishment to involved employees that the United States threatened the supplier ban.)

Why Huawei Matters

Huawei's overall value to China and the global technology hardware competition dwarfs ZTE's. In addition to being the world's second-largest smartphone maker, it's also the world's largest producer of radio access network gear for the telecommunications sector and, critically, for 5G.

The United States has previously sought to persuade its allies not to use Huawei's 5G gear over concerns that China could exploit it for intelligence purposes, and it has barred telecommunications companies receiving U.S. public funds from deploying Huawei 5G technology. Australia and New Zealand have made similar moves, while Canada, Germany and the United Kingdom are currently discussing Huawei 5G equipment bans.

How An Export Ban Could Hurt Huawei

The Meng arrest and current U.S. investigation into Huawei have the potential to significantly hamper the company's economic health and viability, meaning China will consider it yet another example of the United States employing what Beijing perceives to be "modern gunboat diplomacy." Washington's short-lived ban on U.S. suppliers exporting to ZTE, which brought the company to the brink of implosion, provides another example.

The same would happen to Huawei. A list of its 92 core suppliers that Huiwei published in November is dominated by U.S. tech heavyweights like Intel and contains a total of 33 U.S. companies. (That number excludes NXP Semiconductors, a Dutch company that has extensive production facilities in the United States.) Just 29 of Huawei's core suppliers are from mainland China or Hong Kong.

Trade War Sparring Continues

The United States attempted to use the damaging impact of the ZTE export ban to extract concessions from Beijing, hoping that China would be pushed into approving a merger of semiconductor developers Qualcomm and NXP. (Ultimately, Beijing rejected the merger.) Washington will almost certainly use the Huawei investigation as ammunition in its trade war as well.

With its many trade and tariff escalation threats, China has shown that it values reciprocity in its dynamic with the United States. As possible retribution over Meng and Huawei, Beijing could rely on the ambiguous and sometimes contradictory nature of Chinese laws to justify arrests of high-profile U.S. executives in China for violations.

The reality is that a ban on U.S. exports to Huawei would be far more damaging to China than any trade war with Washington.

China could also threaten to pull out of trade negotiations entirely. However, at this point, such a move would only provoke more aggressive U.S. behavior, which China simply can't afford. Huawei is far larger and more important to the Chinese economy than is ZTE, so any potential retaliation could prompt the United States to ban U.S. suppliers from exporting to the company. And the reality is that a ban on U.S. exports to Huawei would be far more damaging to China than any trade war with Washington.

What's Next for the U.S. and China

Over the coming weeks, it will be important to track the investigation's scope and identify any potential settlement negotiations between Huawei and the United States. Typically, sanctions violations do not result in export bans but rather settlement offers from the Justice Department that include a large fine and an action plan for punishing employees involved in the violations. The China hawks in the U.S. government will be calling for significant punishment in the case, whereas China will be trying its hardest to protect Huawei by steering the decision toward a settlement.

More broadly, continued threats of an export ban and concerns about reliance on U.S. components, technology and intellectual property will only push China and Huawei to accelerate efforts to develop their own indigenous capabilities, further spurring the power competition between China and the United States.

[Crafty_Dog]

This writer (a.k.a. Spengler?) is of superior quality but here he may be missing the mark-- I thought I saw that Bolton says he knew of this in advance?


http://www.atimes.com/article/did-trumps-enemies-try-to-derail-a-trade-deal-with-china/

[Crafty_Dog]

Third post



The U.S.-China tech war gets personal. Sabrina Meng Wanzhou, the chief financial officer of Huawei and daughter of the Chinese tech giant’s founder, was detained in Vancouver on an extradition request by the U.S. Details on the arrest remain scant, but it’s likely related to Huawei’s alleged violations of U.S. sanctions on Iran. As with the brief U.S. ban on exports of critical components to Chinese telecommunications equipment maker ZTE, which was also accused of violating previous sanctions on Iran, the CFO’s detention is mostly about the U.S. giving its sanctions some teeth. But while the arrest isn’t explicitly a result of the trade war, it’s not a separate issue altogether. The U.S. has been sounding the alarm about the potential for Beijing to weaponize technology exports for cyberespionage and other nefarious aims. Within the past week alone, Washington persuaded New Zealand to block a major local wireless carrier from using Huawei equipment, and British national carrier BT said it would remove Huawei components from its systems. If the U.S. denies Huawei – the world’s largest supplier of telecom equipment – access to the U.S.-made components on which it still heavily relies, it would harm China’s efforts to move into high-tech industries. Beijing is far more worried about this sort of battle far than it is about any tariffs.

[DougMacG]

Opposite to the 'Lippmann Gap' view is that maybe Trump is actually thinking and planning two steps ahead of the Chinese, the establishment and the rear view mirror analysts.  What if the plan is to topple the oppressive regime along the way, put them on the ash heap of history, not just stop technology theft and Chinese militarization.

Former President Obama has some advice that might be given to the Chinese, stop under-estimating this guy.  https://www.abc.net.au/news/2017-01-16/obama-says-dont-underestimate-donald-trump-in-final-interview/8185104

What if the US under trump has a plan and purpose?  Mattis, Bolton and Pompeo are not there to put on their tombstone they made it to the top of establishment bureaucracy and occupied a seat for a time.  All three I believe are brilliant and committed to much higher accomplishment, if time and circumstances permit.

The US, victim of cyber attacks, is capital of the world's technology, software development, data security and data communications.  The US is not as helpless as we sometimes appear.  (The HRC server and Podesta password were not our greatest moments nor our greatest capability.)  US-based Google has been cooperating with the Chinese on censorship.  https://www.theguardian.com/world/2018/aug/02/google-working-on-censored-search-engine-for-china  Maybe the US also has offensive capability, reverse Chinese censorship for example. 

Trump enjoyed an unprecedented call with Taiwan's President during his transition, turning his nose to restraint and tradition.  He wants achievements in his presidency greater than merely re-energizing the economy.  Maybe he walks out of stalled negotiations and saber rattling with Xi and unleashes a cyber truth campaign in China that make radio free Europe look old by a century.

The next war may not involve guns and rockets.

Trump can act like an oaf and his moves often appear random and mostly lucky.  Maybe instead he is moving small pieces on a chessboard in preparation for moving larger pieces, pursuing an end that one might call checkmate.

[Crafty_Dog]

October 2018

https://www.c-span.org/video/?452478-1/vice-president-pence-intimidated-china

[ccp]

as Rush theorizes, or coincidental timing ,  or planned , I dunno:

https://www.rushlimbaugh.com/daily/2018/12/07/washington-is-still-95-against-trump-and-still-sabotaging-him/

[ccp]

https://www.washingtonpost.com/opinions/2018/12/14/chinas-hybrid-warfare-against-taiwan/?utm_term=.c8ee583dcd0b

President of Taiwan:

https://www.washingtonpost.com/opinions/global-opinions/if-you-like-betting-on-embattled-underdogs-this-leader-is-worth-a-look/2018/12/11/94c3d90c-fd75-11e8-ad40-cdfd0e0dd65a_story.html?utm_term=.c8e9fe046c07

[DougMacG]

Shanghai’s stock index ends 2018 as the world’s biggest loser as trade war, slowing Chinese economy weigh on confidence

https://m.scmp.com/business/markets/article/2179765/hong-kong-shares-steady-early-trading-after-wall-streets-wild

[DougMacG]

https://m.scmp.com/economy/china-economy/article/2180072/chinas-economy-slows-further-manufacturing-contracts-first
------------
Keeping up the drumbeat for US China trade deal.