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What Would Chinese Hegemony Look Like? | The Diplomat

What Would Chinese Hegemony Look Like? | The Diplomat.

It is certainly not inevitable, but what form would a Sinic Monroe Doctrine take?

By Robert E. Kelly
February 10, 2014

East Asia is becoming, in the language of international relations theory, “bipolar.” That metaphor, from magnetism, suggests two large states with overlapping spheres of influence competing for regional leadership. The Cold War was a famous global example of bipolarity. Most states in the world tilted toward the United States or the Soviet Union in a worldwide, zero-sum competition. Although analysts have hesitated for many years in applying such strong language to East Asia, this is now increasingly accepted. A lengthy twilight struggle between China and Japan, with U.S. backing, seems in the offing.

Until recently, Asia was arguably “multipolar”—there was no one state large enough to dominate and many roughly equal states competed for influence. China’s dramatic rise has unbalanced that rough equity. China is now the world’s second largest GDP. Although its growth is slowing, it is still expanding at triple the rate of the U.S. economy and six times the rate of Japan’s. By 2020 China is predicted to be the world’s largest economy. Its population, 1.35 billion, is enormous. One in seven persons on the planet is Chinese. Were China’s GDP per capita to ever reach Japanese or American levels, its total GDP would match that of entire planet today. These heady numbers almost certainly inspire images of national glory or a return to the “middle kingdom,” in Beijing. They help account for China’s increasingly tough claims in the East and South China Seas.

Until recently, China pursued a “peaceful rise” strategy, one of accommodation and mutual adjustment. This approach sought to forestall an anti-Chinese encircling coalition. China’s rapid growth unnerves many states on its perimeter, from India, east to Vietnam, Indonesia and Australia, north to Taiwan, Japan, and Russia. Were these states to align, they might contain China in the same way the Japan, China, and NATO all worked to contain the U.S.SR. The peaceful rise seemed to work, especially in southeast Asia, where Chinese generosity has successfully blocked a united ASEAN position on South China Sea issues.

Since 2009 however, China has increasingly resorted to bullying and threats. The 2008 Olympics appears to have been read in Beijing as a sign of China’s newfound might and sway. In the South China Sea it has pushed a very expansive definition of its maritime zone of control, and it recently faced down the Philippines in a dispute over the Scarborough Shoal in that sea. Indeed, one possible explanation for China’s expansion of itsair defense identification zone (ADIZ) in the East China Sea is that a hard line seems to be working in the South China Sea. But China’s northeast Asian neighbors are far stronger and more capable than its southeast Asian ones. Most observers expect Japan, South Korea and the U.S. to push back, as indeed they have. The U.S. flew bombers through the new ADIZ without warning, and both Japanese and South Korean civilian airlines have been instructed by their respective governments not to comply.

All this then sets up a bipolar contest between China and Japan, in the context of China’s rapid rise toward regional dominance.

Chinese Hegemony?

A common theme in the literature on China’s rise is its apparent inevitability. Westerners particularly tend to get carried away with book-titles such as Eclipse (of the U.S. by China), When China Rules the World, orChina’s New Empire. History is indeed filled with the rise to dominance of powerful states. China and Japan both sought in the past to dominate Asia. Various European states including the U.S.SR, Germany, and France did the same. But frequently these would-be hegemons collided with a counter-hegemonic coalition of states unwilling to be manipulated or conquered. Occasionally the hegemonic aspirant may win; Europe under Rome was “unipolar,” as was feudal Asia now-and-again under the strongest Chinese dynasties. But there is nothing inevitable about this. Hegemonic contenders as various as Napoleon or Imperial Japan have been defeated.

To be fair, it is not clear yet if indeed China seeks regional hegemony. But there is a growing consensus among American and Japanese analysts that this is indeed the case. By Chinese hegemony in Asia we broadly mean something akin to the United States’ position in Latin America. We do not mean actual conquest. Almost no one believes China intends to annex even its weakest neighbors like Cambodia or North Korea. Rather, analysts expect a zone of super-ordinate influence over neighbors.

For example, in 1823, U.S. president James Monroe proclaimed the Monroe Doctrine, which warned all non-American powers to stay out of the Western Hemisphere on pain of U.S. retaliation. This has worked reasonably well for almost 200 years. The U.S. has variously used force, aid, covert CIA assistance, trade, and so on to eject foreign powers from what Washington (condescendingly) came to call “America’s backyard.” Today, of course, such language seems disturbingly neocolonial, but many assume that the fundamental illiberalism of such spheres of influence do not worry non-democracies like China. A Sinic Monroe Doctrine would likely include some mix of the following:

–       the withdrawal of U.S. forces from Japan and Korea,

–       U.S. naval retrenchment from east Asia, perhaps as far back as Hawaii,

–       a division of the Pacific into east/U.S. and west/China zones with a Chinese blue-water navy operating beyond the so-called second island chain running from Japan southeast to New Guinea,

–       an RMB currency bloc in southeast Asia and possibly Korea,

–       a regional trading zone,

–       foreign policies from China’s neighbors broadly in sync with its own.

This is not going to happen soon of course. This is a project for the next several decades, just as U.S. power over Latin America came slowly through the nineteenth century. But such goals would broadly fit with what we have seen in the behavior of previous hegemons, including Imperial Japan and China, Rome, the British Empire, the U.S. in Latin America, and various German plans for Eastern Europe in the first half of the twentieth century. The era of U.S. preponderance in Asia is coming to an end.

Robert E. Kelly (@Robert_E_Kelly) is an associate professor of international relations in the Department of Political Science and Diplomacy at Pusan National University. More of his work may be found at his website,AsianSecurityBlog.wordpress.com.

Asia Times Online :: China loses control of its foreign policy

Asia Times Online :: China loses control of its foreign policy.

China loses control of its foreign policy
By Terry McCulleyTo some people, President Xi Jinping’s efforts to consolidate his control over China’s military and government are a welcome development, especially given China’s haphazard approach to crisis management. Xi’s actions might even be interpreted as a sign that China is transitioning towardshu a more “advanced” political system in which the military and foreign policy are controlled by a strong civilian chief executive.In reality, Xi’s attempt to tighten his control over China’s vast and unwieldy bureaucracy reinforces global fears that China is starting to lose control of its foreign policy. This disturbing truth goes a long way towards explaining why the international community was so alarmed by China’s announcement of a new “Air Defense Identification Zone” (ADIZ) in the East China Sea, followed shortly

thereafter by a “no-fishing zone” in the South China Sea.

Even if these new zones were carefully planned years in advance, they also represent part of a larger pattern of aggression – propelled by China’s hostile and uncompromising form of nationalism – that is beyond the ability of China’s leaders to control.

That is what really underlies the collective anxiety of the United States, Japan, and Southeast Asian countries every time China makes aggressive moves overseas. Ironically, China’s new zones of control only serve to underscore deep concerns among a global community that is starting to realize that China is incapable of controlling the nationalist sentiment which has hijacked China’s foreign policy.

Interestingly enough, some commentators have suggested that China doesn’t even have a foreign policy – or at least nothing that’s remotely coherent. This lack of long-term vision makes Chinese foreign policy even more susceptible to being steered in a dangerous direction by those who stand to benefit from aggressive nationalist posturing.

For instance, in a New York Times op-ed, China scholar David Shambaugh asks, “Does China Have a Foreign Policy?” and then proceeds to answer the question in the negative. This absence of strategic planning makes China’s foreign policy vulnerable to the whims of zealous nationalists and hawkish PLA officers seeking to instigate conflict in order to acquire more power and resources.

Indeed, China security analyst Andrew Scobell suggests that China’s military has engaged in “roguish” behavior motivated by a desire to acquire a greater slice of the government’s budget. According to Scobell, examples of such “roguish” behavior include missile tests near Taiwan in 1995-96; the collision between Chinese and US military aircrafts in 2001; an incident involving a Chinese submarine and a US aircraft carrier in 2006; and the unannounced anti-satellite missile test in 2007. Scobell says that such “roguish” actions could indicate that “PLA leaders are going their own way to pursue power and resources with little regard for civilian leaders or consideration for the larger implications of their activities.”

Another scholar, Professor Huang Jing of the National University of Singapore, has likened China’s young military officers to the hawkish young Japanese officers of the 1930’s who were partly responsible for Japan’s invasion of China. In an article published by The Telegraph, Professor Huang is quoted as saying that young PLA officers are leading China on a collision course with America by “taking control of strategy and … thinking [about] what they can do, not what they should do … This is very dangerous.”

In other words, after devoting so much time and resources towards modernization today’s PLA has a bunch of new toys to play with. The PLA also has greater capacity to project power overseas now, so it’s only natural that some military officers are itching for an opportunity to test out their new capabilities and equipment. In fact, Scobell indicates that PLA officers are eager for exposure to real-world combat because China hasn’t had a major war since 1979, when China attacked Vietnam in a brief but bloody conflict.

This desire to accumulate combat experience and test out new equipment – coupled with the PLA’s bureaucratic interest in obtaining more power and resources by instigating or exaggerating foreign conflicts – means that Xi needs to keep a close eye on the PLA in order to prevent a dangerous miscalculation. Sure enough, last month’s close encounter between Chinese and US naval vessels in the South China Sea provided a frightening glimpse of how adventurous PLA maneuvering can lead to real confrontation.

Of course, it’s quite possible that last month’s close encounter wasn’t adventurism but rather a carefully planned maneuver. China is eager to determine how the US military responds to various scenarios, and China is particularly interested in gauging America’s response to provocations at sea because this helps China plan for a possible clash with the US military over Taiwan.

In such a scenario, the United States would have the initial advantage due to its superior naval power, so China’s current strategy is to quickly knock-out American naval vessels with conventional weapons – especially its new “aircraft carrier killer” DF-21D missiles.

Yet even if the recent close encounter in the South China Sea was part of a carefully planned strategy, Professor Huang still doubts that Beijing’s civilian leaders can rein in young PLA officers, saying that nowadays Beijing “can no longer control much of anything”. This is exactly what concerns the international community, as China’s complex web of competing bureaucratic interests – infused with aggressive nationalism – has spawned a Chinese foreign policy that is hawkish, unpredictable, and uncontrollable.

Xi Jinping is well aware of this problem and has attempted to bring a semblance of discipline to China’s foreign policy by creating a “State Security Committee” headed by Xi himself. This “State Security Committee” is modeled on the US National Security Council, except that China’s version is responsible for coordinating both domestic and foreign policy. Not surprisingly, China scholars such as John Lee have noted that the PLA was initially opposed to the creation of a “State Security Committee”, as it stands to reduce the PLA’s influence over China’s national security policy.

Nevertheless, merely setting up a new committee won’t drastically alter the fervent nationalism and adventurous spirit within the PLA and greater Chinese society. The alarming truth is that regardless of how much President Xi consolidates his power, there is only so much he can do to reduce the enormous influence that individual Chinese citizens and soldiers – emboldened by China’s aggressive form of nationalism – have on China’s foreign policy.

Protecting Chinese citizens overseas
One perverse consequence of China’s extremely nationalistic culture is that Chinese citizens are increasingly willing to push the limits overseas, all the while feeling safe knowing that nationalism will compel Chinese leaders to protect them if something goes wrong – or indeed, if they wind up breaking foreign laws or encroaching on foreign territory.

This holds true regardless of whether the Chinese citizens involved are fishermen veering into foreign waters; traders encroaching on foreign markets; or adventurous military officers. Instead of admonishing citizens who break foreign laws, Beijing typically rushes to their support and orders Chinese media outlets to portray Beijing’s leaders as doing everything in their power to protect Chinese citizens abroad.

The Communist Party has little choice but to passionately defend its citizens overseas – even if they are breaking the law – as otherwise the Party’s monopoly on power will be gravely threatened by nationalist forces.

For example, international newspapers last year reported that upwards of 50,000 Chinese citizens were engaged in illegal gold-mining in Ghana, causing massive environmental destruction in the process. In response, Ghana launched a crackdown on illegal gold-mining which specifically targeted Chinese citizens (even though a small number of other foreigners were also involved).

According to Chinese media reports, Beijing immediately lodged a strong diplomatic protest and rushed to protect its citizens by dispatching a team of central government officials to conduct an investigation in Ghana. Xinhua also reported that Shanglin County – the place in China where many of the goldminers came from – sent its own team of officials to help Chinese citizens return home from Ghana, even offering to pay their airfare.

As the story unfolded, Beijing took pains to show that bold action was being taken – even going so far as imposing retaliatory measures against Ghana. According to the Guardian, China tightened its visa policies for Ghanaian citizens and even delayed the disbursement of China’s development assistance to the country. Faced with such harsh retaliatory measures, Ghana eventually acquiesced by releasing all 169 Chinese citizens detained for illegal gold-mining.

Even though China’s outlandish retaliation risked damaging its long-term relations with Ghana, Beijing was obliged to take swift action – particularly after coming under pressure from cyber-nationalists who had seen images of Chinese citizens injured during the crackdown.

These days, Internet forums are the primary vehicle for expressing nationalist rage in China, and Chinese leaders simply can’t build a great firewall high enough to stop the spread of graphic images and pent-up anger online. Much of this pent-up rage is actually rooted in China’s own internal problems, but Chinese citizens can only safely direct their anger toward outsiders because any serious criticism of the Communist Party is quickly snuffed out.

In this case, Beijing responded to cyber-outrage by making a public spectacle of its iron-clad will to tackle the problem in Ghana. For instance, a spokesperson for China’s embassy in Ghana was quoted by the South China Morning Post as saying that China’s government attaches “great importance to Chinese citizens mining gold in Ghana” and that “a joint investigation team comprising officials from the ministries of foreign affairs, commerce, and public security [was sent] to the West African country to protect their safety and lawful rights”.

The South China Morning Post further reported that Beijing not only asked Ghana to prevent robbery against Chinese citizens, but also asked Ghana to stop detaining Chinese citizens. In other words, nationalist pressure forced Beijing to effectively demand that Ghana stop enforcing its own laws against illegal mining. Ghana enacted these laws to prevent environmental destruction and ensure that all mining activities were subject to taxation, but apparently nationalist pressure compelled Beijing to insist that Chinese citizens shouldn’t be subject to Ghana’s duly-enacted laws.

Despite the crackdown, Ghana’s illegal gold-mining problem won’t improve any time soon because certain local actors benefit from Chinese extraction activities. Ghana’s government receives billions of dollars from China to build infrastructure projects, and it’s well-known that local officials worldwide pocket bribes from their dealings with China. In addition, the international press reported that some Ghanaian entrepreneurs have established joint ventures with Chinese citizens engaged in illegal gold-mining activities.

The China-funded infrastructure projects in Ghana and other countries are usually designed to facilitate resource extraction; gain diplomatic influence; and alleviate China’s unemployment problem, as thousands of Chinese laborers are sent to work on these projects overseas. In many countries, the displacement of local labor in favor of imported Chinese workers provokes intense anger among locals who are denied job opportunities and the chance to learn new technological skills.

In addition, local resentment towards Chinese immigrants is magnified by the perception that Chinese traders have the unfair advantage of being connected to a colossal China-dominated global supply network. These types of grievances have caused rising tension between locals and Chinese immigrants, even leading to violence against Chinese communities in such far-flung places as Tonga, Papua New Guinea, and several African countries.

Many local communities are also furious that Chinese companies are causing environmental damage as well as human rights violations. In both Ghana and Myanmar, for example, locals have expressed outrage that Chinese companies are importing Chinese-made equipment and using it to plunder local resources, destroying the environment and abusing human rights in the process.

The fact that Ghana’s crackdown targeted Chinese immigrants – as opposed to illegal miners from other countries – underscores the intensity of local anger towards the destructive methods of Chinese companies in Ghana.

Local animosity towards Chinese immigrants in Ghana and other African countries has certainly damaged China’s foreign policy, but China’s biggest diplomatic setback in recent years occurred right in its own backyard – Myanmar, where the conduct of individual Chinese traders and large Chinese companies has aroused such revulsion towards China that it’s unclear if Beijing can ever recover its once-dominant influence in the country.

Myanmar’s change of heart
Myanmar’s decision to “open up” in 2011 wasn’t simply a matter of offsetting Beijing’s political influence in the country. It was also fueled by a backlash against the growing dominance of Chinese traders over Myanmar’s economy. Many of these Chinese traders entered Myanmar illegally through semi-autonomous regions along Myanmar’s border with China – particularly Wa territory, which serves as a proxy for Chinese power projection in Myanmar and a vehicle for illegal Chinese immigration into the country.

Myanmar’s so-called “Kokang” region was another semi-autonomous area that served as a gateway for illegal Chinese immigration into Myanmar before it was attacked by the Burmese military in 2009, sending a flood of ethnic Chinese refugees across the border into China.

The “Kokang” ethnic group is actually a mixed bag of ethnic Chinese who settled in Burma many years ago along with more recent illegal Chinese immigrants, many of whom obtained false identity documents by paying off local officials. Indeed, one of the reasons why the Burmese military decided to attack the Kokang in 2009 was to stem the tide of illegal Chinese immigrants and their dominance over Myanmar’s economy.

The predominance of Chinese traders in Myanmar – both legal and illegal – and the perception that Chinese immigrants are cheating the system by skirting local laws has precipitated widespread animosity towards China (and Chinese immigrants) in Myanmar.

This intense hostility is still prevalent in Myanmar today, as evidenced by last month’s arrest of several Chinese individuals who were illegally conducting business in Myanmar while there on tourist visas.

Although it’s not uncommon for people to conduct business while on tourist visas, the nature of this case demonstrates the extreme

sensitivity surrounding Chinese business activities in Myanmar. The group was arrested while exploring for natural resources in Kachin state, and their arrest shows the eagerness of Myanmar’s government to assuage public anger towards China for exploiting Myanmar’s resources and destroying the environment.

It was precisely these grievances which sparked the Kachin conflict in 2011, as Kachin people had become outraged by the destruction of their ancestral homeland by Chinese companies that were extracting resources in collaboration with Burma’s military. Certain Kachin leaders were also profiting from these extraction activities, and during the 2000s older Kachin leaders were actually pushed aside by younger Kachins who wanted to take a harder line towards the Burmese military.

Some younger Kachins were even hoping that armed conflict would break out, thereby enabling Kachins to win back ancestral homelands that Burma’s military had steadily encroached upon and plundered over time. Rising anger among Kachin people towards the Burmese military eventually came to a head over the Myitsone dam, which became a rallying cry for citizens across the nation who were infuriated that Burma’s military was collaborating with Chinese companies to plunder Myanmar’s resources and destroy its natural beauty.

By the late 2000s, a consensus had crystallized between Burma’s military and average Burmese citizens that something had to be done to prevent China from taking over Myanmar’s economy. This is what triggered the attack against the Kokang in 2009 and the military’s decision to “reform” in 2011. Together, these landmark events were designed to curb the influence of Chinese officials, Chinese state-owned enterprises, and individual Chinese traders in Myanmar – particularly in northern Myanmar, where Chinese business interests had become so prevalent that Mandalay had earned the nickname “The 2nd Beijing”.

Northern Myanmar’s disproportionately large Chinese population was recently confirmed by the Irrawaddy, which cited a population survey conducted by Australia National University showing that 20% of Mandalay and a whopping 50% of Lashio is now Chinese. The Burmese government is attempting to address this issue by checking the authenticity of identification documents held by Mandalay residents – particularly individuals who can’t speak Burmese, which according to the Irrawaddy suggests the authorities will be targeting Mandalay’s large population of illegal immigrants from China’s Yunnan Province.

As a result of this tension, Myanmar’s troubled relationship with China now alternates between outright hostility and neighborly friendliness. Even Aung San Suu Kyi has said that it’s crucial for Myanmar to maintain good relations with its neighbors – especially China, which Myanmar still depends on for technical expertise, military equipment, and infusions of cash from projects such as the oil-gas pipelines. As such, the Burmese government still bends over backwards to appease China, and recently even arrested an activist for burning a Chinese flag during a protest against the Letpadaung copper mine.

Nevertheless, Myanmar’s fateful decision to offset Chinese influence in Myanmar by “opening up” in 2011 was a major blow to Beijing’s political and economic interests. Chinese investment in Myanmar has fallen dramatically ever since, and Myanmar stands out as a prime example of how Beijing’s inability to control the behavior of Chinese citizens limits China’s ability to control its own foreign policy.

Nationalism on the high seas
Individual Chinese citizens have also entangled China in numerous conflicts with its neighbors on the high seas, including the incident which led to China’s seizure of Scarborough Shoal, a coral reef in the South China Sea that was previously controlled by the Philippines. China seized the reef in 2012 on the pretext of protecting Chinese fishermen who were accosted at Scarborough Shoal by the Philippines.

Relations between China and the Philippines have been on the rocks (or perhaps on the reef) ever since, and once again China has resorted to imposing retaliatory measures such as subjecting Filipino banana imports to lengthy customs inspections. Unfortunately, it’s become common practice for China – under nationalist pressure – to blackball other countries using various kinds of retaliatory measures. Such arrogant and audacious tactics have provoked outrage in many countries, who accuse China of using access to its huge market as a weapon while insisting that other countries open their doors to a flood of Chinese imports.

The most disturbing example of China’s defiant approach to international affairs occurred in 2010, when China decided to halt exports of rare earth metals to Japan after a Chinese fisherman was arrested by Japan near the Senkaku/Diaoyu islands. Shipments of rare earth metals to other countries were also impacted by China’s export restrictions, and it was this incident more than anything which convinced global leaders that it was time to start cooperating in order to convince China that it can’t unilaterally thumb its nose at well-established global norms.

Even China’s erstwhile ally Russia has begun to distance itself from China by cooperating with some of China’s neighbors in order to discourage reckless behavior by China. In particular, Russia has explored various forms of cooperation with China’s historic arch-rivals Vietnam and Japan, both of whom have bitter outstanding territorial disputes with China.

Russia’s budding ties with Japan are especially significant given their long history of icy relations dating back to Russia’s humiliating defeat in the Russo-Japanese War (1904-05); Russia’s occupation of the Southern Kurils (or what Japan refers to as its “Northern Territories”) in the closing days of World War II; and their ongoing rivalry during the Cold War.

Although the Southern Kurils dispute lingers on, the historic rapprochement between Russia and Japan certainly puts China on notice that the global community is in a stronger position to collectively ward off any future delinquent behavior by China.

As for the Chinese fishermen who were accosted by Japan and the Philippines, it’s hard to say whether they just made an honest mistake or were part of Beijing’s grandiose plan to assert authority over contested territory. In a sense, it doesn’t really matter because either way Chinese leaders would have been compelled to quickly dispatch their cavalry to protect the fishermen – lest China’s leaders be accused of failing to defend Chinese citizens or capitulating to “pawns” of the United States. As both these incidents demonstrate, the impact of individual citizens on China’s foreign policy is so great that even fishermen can inadvertently embroil China in foreign military conflicts.

The ‘Chinese Dream’: Escape 
To prevent further incidents abroad, the Chinese government can’t very well ask its compatriots to stop doing business overseas. On the contrary, Beijing has been actively encouraging outbound investment to offset China’s flagging economic growth and reduce unemployment – both of which pose a threat to the Communist Party. China’s “go out” campaign actually began in the 1990’s under Jiang Zemin, but more recently it’s received a huge boost under Hu Jintao and Xi Jinping in the form of generous government support – particularly to state-owned enterprises.

Many people were actually hoping that Xi Jinping would reduce government support to state-owned enterprises, but apparently this vested interest group is just too powerful – even for China’s strong and charismatic new president. However, Xi Jinping has managed to implement some financial reforms, and his ability to enact reforms will only increase as Xi continues to strengthen his grip on power.

Moreover, Communist Party leaders have bolstered Xi’s ability to push reform proposals though China’s most powerful body – the Central Politburo Standing Committee – by stacking the Central Committee with allies from Xi’s so-called “elitist” faction. The hope of Party leaders who helped engineer Xi Jinping’s rise to power is that Xi will be well-positioned to spearhead critical reforms needed to prevent the collapse of the Party (not to mention China itself).

This represents a marked contrast to former President Hu Jintao’s tenure, which many have criticized as a “lost decade” in which crucial reforms were forestalled due to Hu’s relative weakness and a divided Central Committee that was split between the “elitist” and “populist” factions.

Despite Xi Jinping’s rising status it’s doubtful whether he can really address China’s caustic mix of rising inequality, pervasive corruption, and the myriad health and environmental problems which have fueled protests across the country. Indeed, social unrest has become so widespread that China now devotes an enormous chunk of its budget towards internal security, and domestic security will certainly figure prominently on the agenda of Xi’s newly-created “State Security Committee”.

Official statements describing the State Security Committee – Xi’s pet project which former Chinese Presidents pursued but weren’t powerful enough to create – have declared that it will strengthen China’s response to “anyone who would disrupt or sabotage China’s national security”.

In other words, Xi’s leadership of the State Security Committee is designed to impress upon everyone that Xi Jinping is the ultimate defender of China’s interests, security, and sovereignty.

From his powerful and lofty perch, Xi has attempted to steer Chinese nationalism in a “healthy” direction through his “China dream” slogan and by resurrecting several Mao-era campaigns. These carefully-planned PR stunts along with Xi’s powerful status are all designed to show Chinese citizens that Xi is “redder than red” – the supreme patriarch of Chinese socialism and the ultimate defender of China’s interests. In this respect, Xi is styling himself as some kind of latter-day Chairman Mao – only this time China’s supreme leader has a slightly more profound understanding of public finance.

However, Xi’s attempt to co-opt nationalist fervor by proclaiming he’s the flag-bearer of Chinese patriotism and primary defender of Chinese sovereignty will only increase adventurism by Chinese citizens. After all, Xi’s new “China dream” slogan not only strives to build a large middle class, but also envisions a “strong China” and a “strong military.”

With such explicit backing from China’s top leader, it’s certain that adventurous PLA officers, fishermen, and traders will take Xi’s slogan as a green-light to continue their aggressive actions overseas. History has proven that once Chinese nationalist forces are unleashed they’re impossible to control, and Xi’s sloganeering will only fan the flames of Chinese adventurism abroad.

Xi’s agenda also includes a supposedly wide-ranging crackdown on corruption within the Party, but everyone knows this campaign just isn’t capable of solving China’s deep-rooted culture of corruption. Rather, Xi’s anti-corruption drive is merely another publicity stunt aimed at placating widespread antipathy towards the Party, and many analysts have noted that it’s also being used to attack Xi’s political enemies.

Besides, even if Xi sincerely wanted to tackle corruption, China’s vested interests are so powerful and have so much at stake that President Xi – despite his enhanced power – simply doesn’t have the political strength to make anything more than cosmetic changes to a system that is rotten to the core.

As China’s socio-political system decays, Chinese citizens are becoming more and more desperate to find a way out. And the impetus to escape China’s miserably over-crowded and polluted cities has become even greater in recent years, with toxic haze paralyzing China’s major cities on a regular basis. This has spurred countless numbers of Chinese to seek greener pastures and bluer skies overseas, with Chinese immigrants fanning out to all corners of the globe. Indeed, for many Chinese citizens their “China dream” is to get the heck out of China as soon as possible. And once they leave there isn’t much Beijing can do to control their behavior.

Thus, even if Xi is somehow able to reduce adventurism in the PLA there’s little he can do to regulate the conduct of fishermen, traders, and other Chinese immigrants overseas – many of whom are so desperate to escape China and earn a living they’re willing to do anything, including breaking foreign laws. After all, finding loopholes is one of China’s great national pastimes, so it’s not surprising that some Chinese citizens are tempted to flout social and legal norms overseas.

As the Ghana and Myanmar cases demonstrate, Chinese citizens will continue push the limits, evade the rules, and test the patience of governments and peoples overseas. Invariably, unlawful behavior by some Chinese immigrants will ignite more backlashes against Chinese communities overseas (even if only a few are actually breaking the law). Beijing will then be compelled to rush out and support all its citizens – including the lawbreakers – by engaging in trade retaliation and other kinds of aggressive tactics. This will then prompt countries across the globe to further strengthen their cooperation to discourage reckless behavior by China.

Xi’s new “China dream” slogan is pretty cute, but if Xi thinks he can tame China’s aggressive nationalism or the behavior of Chinese citizens overseas, he must be dreaming. As time goes by, Xi Jinping and other Chinese leaders will continue to lose their grip on China’s foreign policy, and our world will become an ever more dangerous place to live.

Terry McCulley is a freelance writer who focuses on East Asia . You can send Terry comments and questions to his e-mail address, which is his first name followed by 63178@gmail.com 

Japan set to buy $240B worth of hi-tech weapons | StratRisks

Japan set to buy $240B worth of hi-tech weapons | StratRisks.

Source: NewsInfo

Japan set to buy $240B worth of hi-tech weapons

TOKYO—Japan announced on Tuesday that it would buy stealth fighters, drones and submarines as part of a splurge on military hardware that would beef up defense of far-flung islands amid a simmering territorial row with China.

The Cabinet of hawkish Prime Minister Shinzo Abe agreed to spend 24.7 trillion yen ($240 billion) between 2014 and 2019 in a strategic shift toward the south and west of the country—a 5-percent boost to the military budget over five years.

The shopping list is part of efforts by Abe to normalize the military in Japan, which has been officially pacifist since its defeat in World War II. Its well-equipped and highly professional services are limited to a narrowly defined self-defensive role.

Abe’s plan to upgrade Japan’s military capability comes with the establishment of a US-style National Security Council that is expected to concentrate greater power in the hands of a smaller number of senior politicians and bureaucrats.

Fears are growing in Japan over the rising power of China, with the two countries embroiled in a dispute over the sovereignty of a group of islands in the East China Sea, and the perennial menace posed by an unpredictable North Korea.

Joint defense force

New guidelines approved by the Cabinet on Tuesday said Tokyo would introduce a “dynamic joint defense force,” intended to help air, land and sea forces work together more effectively.

Abe said the shift would allow Japan’s military to better shoulder its responsibilities on the global stage, through what he has promoted as “proactive pacifism.”

“We hope to make further contributions to the peace and stability of the international community through proactive pacifism,” he said. “This shows with transparency our country’s diplomatic and defense policies.”

Spending will be raised to 24.7 trillion yen over five years from April 2014, up from the present 23.5 trillion yen over the five years to March 2014, but the figure could be trimmed by up to 700 billion yen if the defense ministry can find savings and efficiencies.

New hardware will include 3 drones, 52 amphibious vehicles, 17 Osprey hybrid choppers and 5 submarines—all designed to boost maritime surveillance and bolster defense of islands.

The spending will also encompass two destroyers equipped with the Aegis antimissile system and 28 new F-35 fighter jets, a stealth plane far superior to the F-15s that Japan currently has in service.

Analysts noted that much of this kit will replace obsolete equipment, but the shift in military priorities is evident.

“The guidelines underscore a clear shift of Japan’s major defense focus to the protection of its islands in the East China Sea,” said Hideshi Takesada, an expert on regional security at Takushoku University in Tokyo.

During the Cold War, Japan’s military was largely static, with the majority of resources in the north and east to guard against any invasion by Russia.

Changing dynamics

But changing dynamics and in particular the rise of China—where double-digit rises in defense spending are the annual norm—mean that Japan’s armed forces need to be located further south and to be able to deploy to the country’s many far-flung islands.

“The guidelines show Japan’s readiness for practical defense if China’s bluff turns to be real military action,” Takesada said.

Regional tensions were ratcheted up last month when China abruptly declared a new air defense identification zone over the East China Sea, including overdisputed Tokyo-controlled islands called Senkaku in Japanese and Diaoyu in Chinese.

Abe on Saturday denounced the declaration and demanded Beijing retract it immediately and unconditionally, after a summit with Southeast Asian leaders where a joint statement called for freedom of travel on the seas and in the air.

Beijing issued a sharp rebuke, singling out Abe for “slanderous remarks.”

The guidelines also call for Japan to boost its missile defense system to counter “a grave and imminent threat” from North Korea.

 

China Slams Abe’s “Malicious Slander”; Warns Japan Is “Doomed To Failure” | Zero Hedge

China Slams Abe’s “Malicious Slander”; Warns Japan Is “Doomed To Failure” | Zero Hedge.

Events in the East China Sea since 2009 have thrust to the forefront the following frightening question: will China and Japan imminently go to war? Conventional answers in the affirmative point to the deep level of historical mistrust and a certain level of “unfinished business” in East Asian international politics, stemming from the heyday of Showa Japan’s imperialism across Asia. Those on the negative often point to the astronomical economic costs that would follow from a war that pinned the world’s first and third largest economies against its second in a fight over a few measly islands, undersea hydrocarbon reserves be damned.

I can’t pretend to arbitrate between these two camps but I find that far too many observers sympathize with the second camp based on rational impulse. Of course China and Japan wouldn’t fight a war! That’d ruin their economies! I sympathize with the Clausewtizean notion of war being a continuation of politics “by other means,” and the problems caused by information asymmetries (effectively handicapping rational decision-making), but the situation over the Senkaku/Diaoyu islands can result in war even if the top leaders in Tokyo and Beijing are eminently rational.

Political scientist James D. Fearon’s path-breaking article “Rationalist Explanations for War” provides a still-relevant schema that’s wonderfully applicable to the contemporary situation between China and Japan in the East China Sea. Fearon’s paper was initially relevant because it challenged the overly simplistic rationalist’s dogma: if war is so costly, then there has to be some sort of diplomatic solution that is preferable to all parties involved — barring information asymmetries and communication deficits, such an agreement should and will be signed.

Of course, this doesn’t correspond to reality where we know that many incredibly costly wars have been fought (from the first World War to the Iran-Iraq War). So, if wars are costly — as one over the Senkaku/Diaoyu islands is likely to be — why do they still occur? Well, the answer isn’t Japanese imperialism or because states just sometimes irrationally dislike each other (as the affirmative camp would argue). It’s more subtle.

Fearon’s “bargaining model” assumes a few dictums about state knowledge, behavior and expectations ex ante. I’ll cast the remainder of the model in terms of Japan and China since they’re our subjects of interest (and to avoid floating off into academic abstractions).

First, China and Japan both know that there is an actual probability distribution of the likely outcomes of the war. They don’t know what the actual distribution is, but they can estimate what is likely in terms of the costs and outcomes of going to war. For example, Japan can predict that it would suffer relatively low naval losses and would strengthen its administrative control of the islands; China could predict the same outcome, or it could interpret things in its favor. In essence, they acknowledge that war is predictable in its unpredictability.

Second, China and Japan want to limit risk or are neutral to risk, but definitely do not crave risk. War is fundamentally risky so this is tantamount to an acknowledgement that war is costlier than maintaining peace or negotiating an ex ante diplomatic solution.

The third assumption is a little dressed up in academic jargon: there can be no “issue indivisibility.” In plain English, this essentially means that whatever the states are fighting over (usually territory, but it could be a pot of gold) can be divided between them in an infinite number of ways on a line going from zero to one.Imagine that zero is Japan’s ideal preference (total Japanese control of the Senkakus and acknowledgement as such by China) and one is China’s ideal preference (total Chinese control of Diaoyu and acknowledgement by Japan). Fearon’s assumption requires that there exist points like 0.23 and 0.83 (and so forth) which set up some sort sharing between the warring parties. Even solutions, such as one proposed by Zheng Wang here at The Diplomat to establish a “peace zone,” could sit on this line.

If the third assumption sounds the shakiest to you that’s probably because it is. “Issue indivisibility” is a nasty problem and a subject of quite some research. It usually is at the heart of wars that seek to decide which state should control a territory such as a Holy City (the intractability of the Arab-Israeli conflict is said to be plagued by indivisible issues).

So, is the dispute over the Senkaku/Diaoyu fundamentally indivisible? Probably in the sense of splitting sovereignty over the islands, but probably not in the sense of some ex ante bargain similar to what Zheng proposed. Even if the set of solutions isn’t infinitely divisible, whatever finite solutions exist might not fall within whatever range of solutions either Japan or China is willing to tolerate — leading to war.

Fearon actually doesn’t buy the indivisibility-leading-to-war theory himself. He reasons that generally almost every issue is complex enough to be divisible to a degree acceptable by each party (undermining the infinite divisibility requirement), and that states can link issues and offer payments to offset any asymmetrical outcome. In the Senkaku/Diaoyu case, this would mean a solution could hinge upon Japan making a broader apology for its aggression against China in the 20th century or China taking a harsher stance on North Korea (both unlikely).

Relevant to the Air Defense Identification Zone is Fearon’s description of war arising between rational states due to incentives to misrepresent capabilities. China and Japan’s leaders know more about their country’s actual willingness to go to war than anyone else, and it benefits to signal strong resolve on the issue to extract more concessions in any potential deal.Japan announcing its willingness to shoot down Chinese drones earlier this year and its most recent defense plans are example of this, and China’s ADIZ is probably the archetype of such a signal. Instead of extracting a good deal, what such declarations can do is force rational hands to war over the Senkaku/Diaoyu islands.

Fearon’s final explanation — regarding commitment problems leading to war — is slightly ancillary to the core discussion about the Senkaku/Diaoyu islands given Japan’s constitutional restraints on the use of force (rendering preemptive, preventative, and offensive wars largely irrelevant in the Japanese case). Regardless, the point remains that even if the Senkaku/Diaoyu islands might seem like a terribly silly thing for the world’s second and third largest economies to go to war over, war can still be likely.

As I observe events in the East China Sea, I mostly recall Fearon’s warnings on certain types of signals leading to brinksmanship (the divisibility issue is far murkier). Both Japan and China don’t seem to be relenting on these sorts of deleterious signals. Additionally, given that Chinese and Japanese diplomats haven’t had high-level contact in fourteen months, even the more primitive rationalist’s explanation, that war occurs because a lack of communication leads to rational miscalculations, becomes plausible.

A reflection on the possible rational reasons for China and Japan to go to war over the Senkaku/Diaoyu islands highlights the seriousness of the ongoing brinksmanship in the East China Sea. If a war is fought over these long-contested islands, it will have an eminently rational explanation underlying all the historical mistrust and nationalism on the surface. War in the East China Sea is possible, despite the economic costs.

 

 

China Slams Abe’s “Malicious Slander”; Warns Japan Is “Doomed To Failure” | Zero Hedge

China Slams Abe’s “Malicious Slander”; Warns Japan Is “Doomed To Failure” | Zero Hedge.

Overnight rhetoric in Asia became increasingly heated when China’s Ministry of Foreign Affairs expressed “strong dissastisfaction” at the slanderous actions of Abe’s Japanese government over the Air Defense Identification Zone (ADIZ) and the “theft and embezzlement” of the Diaoyu Islands. “Japan’s attempt is doomed to failure,” China warned ominously and as we highlight below, a reflection on the possible rational reasons for China and Japan to go to war over the Senkaku/Diaoyu islands highlights the seriousness of the ongoing brinksmanship in the East China Sea. If a war is fought over these long-contested islands, it will have an eminently rational explanation underlying all the historical mistrust and nationalism on the surface. War in the East China Sea is possible, despite the economic costs.

The ‘triangle’ of doom in the East China Sea…

Via Google Translate,

Q: Japanese Prime Minister Shinzo Abe held in Japan recently – especially during the ASEAN summit, accusing China to unilaterally change the status of the East China Sea, East China Sea, said China’s air defense identification zone designation is improper for the high seas against the freedom of overflight, asked China to revoke the measure. What is your comment?

A: We have made some Japanese leaders use international slanderous remarks China expresses strong dissatisfaction.

Diaoyu Islands are China’s inherent territory. Japan over the Diaoyu Islands theft and embezzlement have always been illegal and invalid. Since last year, the Japanese deliberately provoked the Diaoyu Islands dispute, unilaterally change the status quo of the Diaoyu Islands issue is none other than the Japanese themselves. In this regard, the Chinese law to take the necessary measures to safeguard national sovereignty and territorial fully justified, blameless.

East China’s air defense identification zone designation is intended to protect national defense aviation security measures, consistent with international law and international practice, do not affect the countries of aircraft overflight freedoms enjoyed under international law. Deliberate on this issue in Japan to China to launch an attack, an attempt to tamper with the concept, the implementation of double standards, mislead international public opinion, Japan’s attempt is doomed to failure.

“Rationalist Explanations For War” In The East China Sea

Submitted by Ankit Panda of The Diplomat,

Events in the East China Sea since 2009 have thrust to the forefront the following frightening question: will China and Japan imminently go to war? Conventional answers in the affirmative point to the deep level of historical mistrust and a certain level of “unfinished business” in East Asian international politics, stemming from the heyday of Showa Japan’s imperialism across Asia. Those on the negative often point to the astronomical economic costs that would follow from a war that pinned the world’s first and third largest economies against its second in a fight over a few measly islands, undersea hydrocarbon reserves be damned.

I can’t pretend to arbitrate between these two camps but I find that far too many observers sympathize with the second camp based on rational impulse. Of course China and Japan wouldn’t fight a war! That’d ruin their economies! I sympathize with the Clausewtizean notion of war being a continuation of politics “by other means,” and the problems caused by information asymmetries (effectively handicapping rational decision-making), but the situation over the Senkaku/Diaoyu islands can result in war even if the top leaders in Tokyo and Beijing are eminently rational.

Political scientist James D. Fearon’s path-breaking article “Rationalist Explanations for War” provides a still-relevant schema that’s wonderfully applicable to the contemporary situation between China and Japan in the East China Sea. Fearon’s paper was initially relevant because it challenged the overly simplistic rationalist’s dogma: if war is so costly, then there has to be some sort of diplomatic solution that is preferable to all parties involved — barring information asymmetries and communication deficits, such an agreement should and will be signed.

Of course, this doesn’t correspond to reality where we know that many incredibly costly wars have been fought (from the first World War to the Iran-Iraq War). So, if wars are costly — as one over the Senkaku/Diaoyu islands is likely to be — why do they still occur? Well, the answer isn’t Japanese imperialism or because states just sometimes irrationally dislike each other (as the affirmative camp would argue). It’s more subtle.

Fearon’s “bargaining model” assumes a few dictums about state knowledge, behavior and expectations ex ante. I’ll cast the remainder of the model in terms of Japan and China since they’re our subjects of interest (and to avoid floating off into academic abstractions).

First, China and Japan both know that there is an actual probability distribution of the likely outcomes of the war. They don’t know what the actual distribution is, but they can estimate what is likely in terms of the costs and outcomes of going to war. For example, Japan can predict that it would suffer relatively low naval losses and would strengthen its administrative control of the islands; China could predict the same outcome, or it could interpret things in its favor. In essence, they acknowledge that war is predictable in its unpredictability.

Second, China and Japan want to limit risk or are neutral to risk, but definitely do not crave risk. War is fundamentally risky so this is tantamount to an acknowledgement that war is costlier than maintaining peace or negotiating an ex ante diplomatic solution.

The third assumption is a little dressed up in academic jargon: there can be no “issue indivisibility.” In plain English, this essentially means that whatever the states are fighting over (usually territory, but it could be a pot of gold) can be divided between them in an infinite number of ways on a line going from zero to one. Imagine that zero is Japan’s ideal preference (total Japanese control of the Senkakus and acknowledgement as such by China) and one is China’s ideal preference (total Chinese control of Diaoyu and acknowledgement by Japan). Fearon’s assumption requires that there exist points like 0.23 and 0.83 (and so forth) which set up some sort sharing between the warring parties. Even solutions, such as one proposed by Zheng Wang here at The Diplomat to establish a “peace zone,” could sit on this line.

If the third assumption sounds the shakiest to you that’s probably because it is. “Issue indivisibility” is a nasty problem and a subject of quite some research. It usually is at the heart of wars that seek to decide which state should control a territory such as a Holy City (the intractability of the Arab-Israeli conflict is said to be plagued by indivisible issues).

So, is the dispute over the Senkaku/Diaoyu fundamentally indivisible? Probably in the sense of splitting sovereignty over the islands, but probably not in the sense of some ex ante bargain similar to what Zheng proposed. Even if the set of solutions isn’t infinitely divisible, whatever finite solutions exist might not fall within whatever range of solutions either Japan or China is willing to tolerate — leading to war.

Fearon actually doesn’t buy the indivisibility-leading-to-war theory himself. He reasons that generally almost every issue is complex enough to be divisible to a degree acceptable by each party (undermining the infinite divisibility requirement), and that states can link issues and offer payments to offset any asymmetrical outcome. In the Senkaku/Diaoyu case, this would mean a solution could hinge upon Japan making a broader apology for its aggression against China in the 20th century or China taking a harsher stance on North Korea (both unlikely).

Relevant to the Air Defense Identification Zone is Fearon’s description of war arising between rational states due to incentives to misrepresent capabilities. China and Japan’s leaders know more about their country’s actual willingness to go to war than anyone else, and it benefits to signal strong resolve on the issue to extract more concessions in any potential deal. Japan announcing its willingness to shoot down Chinese drones earlier this year and its most recent defense plans are example of this, and China’s ADIZ is probably the archetype of such a signal. Instead of extracting a good deal, what such declarations can do is force rational hands to war over the Senkaku/Diaoyu islands.

Fearon’s final explanation — regarding commitment problems leading to war — is slightly ancillary to the core discussion about the Senkaku/Diaoyu islands given Japan’s constitutional restraints on the use of force (rendering preemptive, preventative, and offensive wars largely irrelevant in the Japanese case). Regardless, the point remains that even if the Senkaku/Diaoyu islands might seem like a terribly silly thing for the world’s second and third largest economies to go to war over, war can still be likely.

As I observe events in the East China Sea, I mostly recall Fearon’s warnings on certain types of signals leading to brinksmanship (the divisibility issue is far murkier). Both Japan and China don’t seem to be relenting on these sorts of deleterious signals. Additionally, given that Chinese and Japanese diplomats haven’t had high-level contact in fourteen months, even the more primitive rationalist’s explanation, that war occurs because a lack of communication leads to rational miscalculations, becomes plausible.

A reflection on the possible rational reasons for China and Japan to go to war over the Senkaku/Diaoyu islands highlights the seriousness of the ongoing brinksmanship in the East China Sea. If a war is fought over these long-contested islands, it will have an eminently rational explanation underlying all the historical mistrust and nationalism on the surface. War in the East China Sea is possible, despite the economic costs.

 

US, Chinese Warships “Nearly Collide” In South China Sea | Zero Hedge

US, Chinese Warships “Nearly Collide” In South China Sea | Zero Hedge. With the recent deployment of China’s air defenze zone, and the subsequent announcement of a comparable zone by South Korea which overlaps not only with China’s own, but with that of Japan, it almost seems like a scenario designed to provoke an escalating conflict on the tiniest of provocations is actively being produced. A scenario such as the one US defense officials revealed today, when a guided missile cruiser operating in international waters in the South China Sea was forced to take evasive action last week to avoid a collision with a Chinese navy ship maneuvering nearby. Hold on: how can two massive ships, visible to the naked eye and certainly to radar from hundreds of miles away, “nearly collide”? Reuters reports that the incident took place on December 5 and involved the USS Cowpens. The Pacific Fleet statement did not offer details about what led to the near-collision. But it did say the incident underscored the need for the “highest standards of professional seamanship, including communications between vessels, to mitigate the risk of an unintended incident or mishap.” The rest of the story is widely known:

Beijing declared the air defense zone over the East China Sea late last month and demanded that aircraft flying through the area provide it with flight plans and other information.   The United States and its allies rejected the Chinese demand and have continued to fly military aircraft into the zone, which includes air space over a small group of islands claimed by China but currently administered by Tokyo.   In the midst of the tensions over the air defense zone, China deployed its only aircraft carrier, the Liaoning, to the South China Sea for maneuvers. Beijing claims most of the South China Sea and is involved in territorial disputes in the region with several of its neighbors.

And so, the waters have been tested, so to speak, with a media “warning” on just how brazen China can be when it comes to its “aggressive” tactics in what we are confident the Chinese media will describe as its own maritime territory, begging the question of just who was provoking whom, especially since the response to a Chinese missile cruiser sailing idly by New York or San Francisco, even if in “international waters”, would hardly see the same controlled reaction by the US. Then again, it has been only two weeks since China’s most recent “escalation.” We are confident that given time, this will be the least of the close shipping encounters that involve Chinese, US, Japanese and/or Korean navies in the East China Sea. After all, one must think of all that, GDP that as WWII taught us, can be easiest gained through some modest, or not so modest, international conflict.

 

Some Stunning Perspective: China Money Creation Blows US And Japan Out Of The Water | Zero Hedge

Some Stunning Perspective: China Money Creation Blows US And Japan Out Of The Water | Zero Hedge.

With private sector loan creation in the US and Japan virtually unchanged since Lehman levels (and the US in danger of posting a negative comp in a very months) and Europe loan creation contracting at a record pace, it falls upon the Fed and Bank of Japan (and possibly the ECB soon) to inject the much needed credit-money liquidity into the system. And, as everyone knows, month after month the Fed and the BOJ diligently create $85 billion and $75 billion in new outside money out of thin air (that this “credit” ends up in the stock market is a different topic).

So to help readers get a sense of perspective how the US and Japan compare when matched to China, below we present a chart showing the fixed monthly “money” creation by the Fed and the BOJ compared to the most comprehensive money supply aggregate available in China – the Total Social Financing – for the month of November. The chart speaks for itself.

Basically, while everyone focuses on the breakneck money creation by the Fed and the BOJ, what happened in the past month is that China quietly created some 20% more money. Perhaps most impotantly, between these three entities, nearly $400 billion in liquidity was created de novo in one month! Because when the entire world is a credit-fueled ponzi scheme, these are the kind of numbers that matter.

For those curious, here is a more detailed breakdown of the Chinese numbers from Bank of America.

New bank loans and TSF rebounded notably in November

Despite higher and volatile interbank rates and rising bond yields, credit growth remained quite robust towards year-end. Two most watched data points, new bank loans and Total Social Financing (TSF), rebounded notably to RMB625bn and RMB1230bn respectively in November from RMB506bn and RMB856bn in October. YoY bank loan growth remained unchanged at 14.2%, while yoy outstanding TSF growth moderated to 19.5% from 19.7%. Today’s money & credit data should be positive for markets which have been worried that the PBoC could tighten credit supply to reduce leverage by citing rising bond yields and interbank rates.

Details of TSF: All financing activities accelerated

  • New entrusted loans rebounded notably to RMB270bn in November from RMB183bn in October, while new trust loans increased to RMB102bn from RMB40bn.
  • New corporate bond rose to RMB138bn in November from RMB107bn in October. We note that government and coporates delayed their bond issuance or scaled down the size after bond yield soared, but the net corporate bond issuance in TSF still rebounded due to a smaller amount of expiry in November from October.
  • New FX loan edged up to RMB12bn in November from RMB5bn in October.
  • Non-discounted bankers acceptance (BA) increased by RMB6bn in November after falling RMB40bn in October. We think the monthly numbers are particularly volatile, and there is no need to overly-interpret it (This is also the reason why we exclude it from calculating our revised TSF growth.)

Loan details: demand for working capital remained decent

  • New MLT corporate loans fell to RMB86bn in November from RMB144bn in October. Concerning seasonality, the number is not low. Note that it dropped to –RMB3bn in November 2012 from RMB169bn in October 2012 despite supportive policies and recovering growth momentum then. We believe policies would remain relative neutral in coming months and there could be no sudden reversal of policies.
  • New short-term corporate loans rose to RMB241bn in November from RMB215bn in October. Meanwhile, discounted bills also increased by RMB19bn after falling RMB71bn. It suggests loan demand for working capital remained decent.
  • New MLT loans to household (mainly mortgage loans) rebounded to RMB182bn in November from RMB154bn in October, supported by strong home sales momentum in previous months. New short-term loans to households rose to RMB80bn in November from RMB51bn in October, reflecting that SME loans could remain supported.

* * *

So how long before the developed and developing world “have” to create $1 trillion or more in money supply each month to keep the house of cards from toppling?

 

 

Japan Press: “China-Japan War To Break Out In January” | Zero Hedge

Japan Press: “China-Japan War To Break Out In January” | Zero Hedge.

Following China’s unveiling of its air defense identification zone (ADIZ) in the East China Sea, overlapping a large expanse of territory also claimed by Japan, the Japanese media has, as The Japan Times reports, had a dramatically visceral reaction on the various scenarios of a shooting war. From Sunday Mainichi’s “Sino-Japanese war to break out in January,” to Flash’s “Simulated breakout of war over the Senkakus,” the nationalism (that Kyle Bass so notably commented on) is rising. Which side, wonders Shukan Gendai ominously, will respond to a provocation by pulling the trigger?The game of chicken between two great superpowers is about to begin has begun.

Via The Japan Times,

Five out of nine weekly magazines that went on sale last Monday and Tuesday contained scenarios that raised the possibility of a shooting war.

 

 

First, let’s take Flash (Dec. 17), which ran a “Simulated breakout of war over the Senkakus,” with Mamoru Sato, a former Air Self-Defense Force general, providing editorial supervision.Flash’s scenario has the same tense tone as a Clancy novel, including dialog. On a day in August 2014, a radar operator instructs patrolling F-15J pilots to “scramble north” at an altitude of 65,000 feet to intercept a suspected intruder and proceeds from there.

 

Sunday Mainichi (Dec. 15) ran an article headlined “Sino-Japanese war to break out in January.” Political reporter Takao Toshikawa tells the magazine that the key to what happens next will depend on China’s economy.

 

“The economic situation in China is pretty rough right now, and from the start of next year it’s expected to worsen,” says Toshikawa. “The real-estate boom is headed for a total collapse and the economic disparities between the costal regions and the interior continue to widen. I see no signs that the party’s Central Committee is getting matters sorted out.”

 

An unnamed diplomatic source offered the prediction that the Chinese might very well set off an incident “accidentally on purpose”: “I worry about the possibility they might force down a civilian airliner and hold the passengers hostage,” he suggested.

 

In an article described as a “worst-case simulation,” author Osamu Eya expressed concerns in Shukan Asahi Geino (Dec. 12) that oil supertankers bound for Japan might be targeted.

 

“Japan depends on sea transport for oil and other material resources,” said Eya. “If China were to target them, nothing could be worse to contemplate.”

 

In an air battle over the Senkakus, the Geino article continues, superiority of radar communications would be a key factor in determining the outcome. Japanese forces have five fixed radar stations in Kyushu and four in Okinawa. China would certainly target these, which would mean surrounding communities would also be vulnerable.

 

One question that seems to be on almost everybody’s mind is, will the U.S. military become involved?

 

Shukan Gendai (Dec. 14) speculated that Chinese leader Xi Jinping might issue an order for a Japanese civilian airliner to be shot down. As a result of this, a U.S. Navy aircraft carrier would come to Japan’s aid and send up fighters to contend with the Chinese.

 

Unlike Japan, the U.S. military would immediately respond to a radar lock-on threat by shooting down the Chinese planes,” asserts military analyst Mitsuhiro Sera. “It would naturally regard an aircraft flying overhead as hostile. They would shoot at it even if that were to risk discrediting the Obama administration.”

 

“With the creation of Japan’s National Security Council on Dec. 4, Japan-U.S. solidarity meets a new era,” an unnamed diplomatic source told Shukan Gendai. “If a clash were to occur between the U.S. and China, it would be natural for the Self-Defense Forces to provide backup assistance. This was confirmed at the ‘two-plus-two’ meeting on Oct. 3.”

 

“China is bent on wresting the Senkakus away from Japan, and if Japan dispatches its Self-Defense Forces, China will respond with naval and air forces,” Saburo Takai predicts in Flash. “In the case of an incursion by irregular forces, that would make it more difficult for the U.S. to become involved. Japan’s Ministry of Foreign Affairs would protest through diplomatic channels, but China would attempt to present its takeover as a fait accompli.

 

“China fears a direct military confrontation with the U.S.,” Takai adds. “A few days ago, two U.S. B-52s transited the ADIZ claimed by China, but the flights were not for any vague purpose. I suppose the Chinese tracked the flights on their radar, but the B-52s have electronic detection functions that can identify radar frequencies, wavelength and source of the signals. These flights are able to lay bare China’s air defense systems. It really hits home to the Chinese that they can’t project their military power.”

 

Which side, wonders Shukan Gendai, will respond to a provocation by pulling the trigger? The game of chicken between two great superpowers is about to begin.

 

 

Japan Dispatches F-15s, E-767s And P-3 Into China’s Air Defense Zone, China Scrambles Su-30 In Response | Zero Hedge

Japan Dispatches F-15s, E-767s And P-3 Into China’s Air Defense Zone, China Scrambles Su-30 In Response | Zero Hedge.

China’s escalation and re-escalation described in detail yesterday, has just been met with a corresponding re-re-escalation by Japan.

  • China’s Ministry of Defense reports that the nation identified Japanese military planes that entered into Chinese air defense identification zone today.
  • 7 batches of 10 Japanese planes consisting of E-767, P-3 and F-15 entered into the zone: statement
  • China has also identified 2 batches of 2 U.S. surveillance planes consisting of P-3 and EP-3, without specifying whether the planes entered into the zone: statement
  • China scrambled Su-30, J-11 and other aircraft in response.

And now it’s China’s turn to, once again, respond. And then Japan and the US again, and so on, until someone gets hurt.

Source

 

 

China Declares “Willing To Engage In A Protracted Confrontation” With Japan As “Prime Target” | Zero Hedge

China Declares “Willing To Engage In A Protracted Confrontation” With Japan As “Prime Target” | Zero Hedge.

Following the to-ing and fro-ing of the last 2 days with US and Japan “testing” China’s new Air Defense Zone (ADIZ), China has not only escalated (as we noted earlier) but as the day begins in Asia is stepping up the rhetoric significantly. Official media said that Japan is the “prime target” and it is an “urgent task for China to further train its air force to make full preparation for potential conflicts.” Japanese lawmakers, meanwhile, are pushing for a bill “demanding an immediate withdrawal of China’s ADIZ.” While the Western world goes on its merry way buying S&P futures, China’s concluding message rings its most defint so far, “We are willing to engage in a protracted confrontation with Japan. Our ultimate goal is to beat its willpower and ambition to instigate strategic confrontation against China.”

The Chinese just stepped up the rhetoric notably,

Via Yonhap,

China’s official media pointedly said Friday that Japan is the “prime target” of Beijing’s newly declared air control zone over the East China Sea, warning that China is willing to engage in “a protracted confrontation with Japan.”

 

China’s declaration of its Air Defense Identification Zone (ADIZ), announced last week, has sparked strong resistance from Japan, the United States, South Korea and other neighboring Asian nations. The new zone partly overlaps those of South Korea and Japan.

 

The U.S. flew two B-52 bombers through the Chinese zone without informing China this week. South Korea and Japan followed suit. In response, China sent several fighter jets and an early warning aircraft on patrol Thursday into the disputed air space.

 

In an editorial titled “Japan prime target of ADIZ tussle,” the official Global Times newspaper said, “We should carry out timely countermeasures without hesitation against Japan when it challenges China’s newly declared ADIZ.”

 

If Tokyo flies its aircraft over the zone, we will be bound to send our planes to its ADIZ,” the editorial said.

 

“If the trend continues, there will likely be friction and confrontations and even tension in the air like in the Cold War era between the U.S. and the Soviet Union,” it said.

 

“It is therefore an urgent task for China to further train its air force to make full preparation for potential conflicts,” the editorial said.

 

“We are willing to engage in a protracted confrontation with Japan. Our ultimate goal is to beat its willpower and ambition to instigate strategic confrontation against China,” it said.

 

Analysts said the Chinese declaration of air control zone is mainly aimed at bolstering its claims to a group of islets in the East China Sea at the center of a bitter territorial dispute with Japan, which are known as Diaoyu in China and Senkaku in Japan.

 

The Japanese are not backing down…

Via Kyodo News,

An official of Japan’s ruling Liberal Democratic Party is considering asking lawmakers to adopt a bill demanding an immediate withdrawal of China’s air defense zone in East China Sea

 

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