Chinese Military,Political and Social Superthread

[Edward Campbell]

An interesting and only slightly provocative proposal to provide a "soft landing" for China by Prof Zhang Weiying of Guanghua School of Management at Peking University (the Chinese equivalent of Stanford or Harvard) which is reproduced under the Fair Dealing provisions of the Copyright Act from the China Daily:

http://europe.chinadaily.com.cn/epaper/2012-10/05/content_15797044.htm

'Reduce the role of the State'

Updated: 2012-10-05 07:17

By Andrew Moody and Lu Chang (China Daily)

Economist believes China can avoid hard landing if economy is more market-driven

There is a parallel between the Chinese economy over the past 30 years and a lazy student who suddenly has decided to open his books, says Zhang Weiying, one of China's leading economists.

The 53-year-old professor of economics at the Guanghua School of Management at Peking University argues that such an individual would expect to improve his or her marks.

Economist Zhang Weiying is concerned that the Chinese economy is over-reliant on investment-led growth.
Zou Hong / China Daily

"In the past three decades, China has grown so fast. That is natural. It is just like you are a student who never studied very hard. You never passed 60 percent. Then you begin to study and it is very easy to improve to 70 and 80 percent but when you come to 90, it becomes very difficult to improve even one mark."

Zhang, who was speaking in the Hui Cong Shu Yuan, an ancient courtyard complex that was once a Confucian temple in Haidian district of Beijing, believes China can only go beyond small incremental improvements by making substantial market reforms in its economy.

This is one of the main arguments in his new book, What is Changing China, which sets out an agenda for change, including wholesale privatization of State-owned enterprises, which still dominate the China economy.
"If the State sector is so dominant there will be no possibility to have what we call a level playing field. So we need to privatize the big State-owned sector. Technically, it wouldn't be very difficult because most State-owned firms are already listed on the stock exchange," he says.

Zhang, who has an open charm, suggests the Chinese government could take a lead from the former British prime minister Margaret Thatcher, who embarked on a privatization program of Britain's nationalized industries in the 1980s.

"We can learn from Mrs Thatcher's privatization program to reduce State shares gradually. If State control was brought down from 70 or 80 to 40 or 50 percent, it would still hold the biggest share but it would be an important signal about which direction the country was going," he says.

With China's growth rate slowing, Zhang's views are now much sought after. He recently took part in a panel discussion on Bloomberg TV with another former British prime minister Gordon Brown at the World Economic Forum in Tianjin.

He says his views on economics derive from the Austrian school, one of whose prominent members was the Austrian-born Friedrich Hayek, also a big influence on Thatcher.

Hayek, a free-market thinker who was based at the London School of Economics, waged an ideas war with the Cambridge University economist John Maynard Keynes in the 1930s and 1940s that defined the economics debate for most of the 20th century.

"The Austrian school sets out that we as human beings are very ignorant and know little. As a result, decisions about the economy cannot be made centrally with centralized information. Decisions need to be decentralized and made by individuals," he says.

"If you let governments intervene in the market that must reduce human beings' freedom."

Zhang, who is currently on a sabbatical but will return to teaching next year and who was dean at the Guanghua School of Management until 2010, comes from humble origins.

His parents were farmers in Wubu county in the southeastern corner of Yulin, Shaanxi province, and neither could read or write.

He believes this gave him an advantage over the children from more middle class backgrounds.

"They did not know what I did. They never made suggestions, either to do this or that. They never knew in any of the books or articles I published what I was talking about. I was totally free," he says.

Often short of food at home during difficult times in the 1960s, his academic brilliance earned him things to eat when at middle school.

"Some of the pupils didn't study very hard and found it difficult to pass exams and so I helped them in exchange for food," he recalls.

Zhang was among the first-year intake to go to university after the "cultural revolution" (1966-76) when he went to Northwestern University in Xi'an to study economics in 1978.

He then worked for a government economics research institute before studying at Oxford University in the early 1990s.

"It was my second trip abroad. I had been to Japan before. It wasn't, however, as big a culture shock as going to university for the first time. Before I went to Xi'an I had never seen a train or used a telephone," he says.

After Oxford, he went on to co-found the influential China Center for Economic Research at Peking University with Justin Yifu Lin, who became chief economist of the World Bank, and Yi Gang, now deputy governor of the People's Bank of China. He then combined his role as a leading China economist with becoming an academic reformer at the Guanghua School of Management.

During his current sabbatical, he is frequently in demand for opinion pieces from such leading international publications as the Wall Street Journal, and on the international lecture circuit.

Zhang is concerned the Chinese economy is currently over-reliant on investment-led growth, and he fears a repeat of the Asian financial crisis of the late 1990s. "If you look at the current situation, the government uses too many resources but they produce relatively little," he says.

"If you look at Chinese industry, the percentage of capital owned by the State sector is 12 percent higher than (the proportion) of State industry output. Fiscal investment is being used to support this growth. This cannot be sustainable."

He believes measures need to be introduced to bolster the private sector and create a more entrepreneur-friendly economy.

"I think this is not very difficult. First you need to create a more confident environment for private firms. You need a good legal system to protect both physical and intellectual property. This will encourage people to innovate and invest for the long term. Too many entrepreneurs look for short-term returns at present, rather than over a 10 or 20-year period."

Zhang says he believes China can avoid a hard landing if certain reforms are put in place and the economy moves in a more market-driven direction. "Will China have a hard landing? I don't necessarily think so, but it depends on how China will change. I think growth will go down to 7 or even 6 percent but that would be good if we could sustain it for another 20 or 30 years," he says.

The economist is concerned that governments across the world made a wrong move in printing money and flooding their economies with liquidity as a response to the financial crisis.

"You just delay rather than solve the problem. One most important principle of economics is that there is no free lunch," he says.

"In Europe, particularly in countries like Spain, there is a welfare problem and people have no incentive to work hard. Even in the US, Obama thinks if we tax the rich more, we can solve our problem. We have a leadership crisis all over the world, in the US, in Europe and Asia."

One of the major preoccupations of his hero Hayek was hyper inflation and Zhang fears the risk of a more inflationary future with the current obsession with quantitative easing as a policy instrument.

"You cannot let a second mistake solve the first mistake. With the Obama administration the fact that you need a second and third round of QE means the first failed. When you take drugs, a small dose will make you excited but eventually you need bigger and bigger doses," he says.

Zhang was, pretty unceremoniously, fired as Dean of the Guanghua School of Management (in 2010) for having too many radical ideas. It is not 'normal' to read about Hayek and Thatcher in the Chinese media. I wonder if this little "talk" is timed to coincide with the imminent "change of command" in Beijing.

 

[GAP]

For China, he's a big change, if they are starting to listen to him...

 

[Edward Campbell]

For China, he's a big change, if they are starting to listen to him...

He's part of a "second wave;" the "first wave" was led by Jiang Zemin, who was "paramount leader" from 1992 until 2004; he represented the so called Shanghai Gang of tooth and claw capitalists ~ the problem was that they were more talk than action. Despite the best efforts of Premier Zhu Rongji, who really is a capitalist, the muddled Deng Xiaoping recipe of rapid growth led by state owned enterprises remained in place.

A lot of people are listening; there is, I think, a general recognition that too much capital is idle, locked up inside state owned 'enterprises,' but some of those state own enterprises are major employers (and more unemployment is the last thing China needs right now ~ remember that social harmony trumps all other policy issues, every time) and have their own, internal power bases (often the People's Liberation Army which is a major force in industry).

 

[a_majoor]

Throwing your weight around isn't the best way to make friends and influence people:

http://blogs.the-american-interest.com/wrm/2012/10/06/china-hands-us-another-big-asia-win/

China Hands US Another Big Asia Win

China isn’t very good at foreign policy; that is the only way to make sense of the apparent decision by a number of large Chinese banks to boycott the annual meeting of the World Bank and the IMF scheduled for Tokyo next week.

As the WSJ tells us, the decision comes as a result of the latest flare in the long running Japan-China territorial dispute over what Japan calls the Senkaku Islands in the East China Sea. High profile banks with strong links to China’s government and its galaxy of state-owned enterprises have pulled out of both the Tokyo conference and another banking event scheduled for Osaka.

Like a lot of recent Chinese diplomacy, the bank pull out will anger and alarm China’s neighbors without actually changing their policy. Japan and others in the region will have their growing perception of China as a regional bully reinforced. They will fear China and they will mistrust China — but they won’t obey China. Instead, Japan and its neighbors will have even more reason to deepen their defense and economic cooperation with the United States — exactly the outcome that China is hoping to avoid.

What the move really telegraphs is weakness, not strength. China’s diplomats are actually very good at what they do, and few people understand the dynamics of Asia better than Beijing’s best. By allowing such a clumsy and crude maneuver to go forward, the Chinese government is admitting to the world that it doesn’t have the political assurance to ignore counterproductive nationalist agitation at home.

This should be taken as further evidence that China’s technocrats are less and less able to deliver the kind of pragmatic, effective governance that China needs. The justification for China’s form of government is that a kind of neo-Confucian elite of intelligent elders can make the wisest decisions for the good of the country without having to pander to populist passion. The Communist Party proposes itself to the nation as that kind of quasi-Confucian meritocracy, and points to the country’s rapid economic growth as proof that this system works.

That benign picture is undercut both by events like the Bo Xilai affair, which show corruption and skullduggery rather than wisdom and virtue at the peak of China’s system, and by the clear evidence that the technocrats are running scared when it comes to issues like China’s territorial disputes. Many China watchers increasingly believe that the technocrats are also bowing to pressure from powerful special interests when it comes to economic governance as well — that the system is less and less able to focus on abstract policy questions and more and more subject to lobbying and special pleading.

If true, these are signs that the Chinese system is becoming decadent and ineffective even as the pressures within China are rising. China’s neighbors are smart enough to understand this, and the perception of a crisis inside the Chinese governance system is yet another reason why so much of Asia is turning in America’s direction these days.

 

[Edward Campbell]

An interesting and insightful take on China's ruling elite in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from The Diplomat, a journal specializing in Asian affairs:

http://thediplomat.com/2012/10/01/is-chinas-communist-party-doomed/?all=true

Is China’s Communist Party Doomed?
Could Beijing's ruling elite succumb to the same fate as those in the former Soviet Union? Perhaps.

October 01, 2012

Last Friday's announcement in Beijing that the ruling Chinese Communist Party (CCP) will convene its 18th congress on November 8 has brought much relief to those concerned that political scandals and power struggle at the very top of the Chinese government have derailed the once-in-a-decade leadership transition.  Finally, the party's top leaders seemed to have agreed on what to do with the disgraced former Chongqing party boss Bo Xilai (likely off to jail) and on whom to promote to the Politburo and its more powerful standing committee.

For all the obvious reasons, China's ruling elites will do their best in the next few months to project an image of unity and self-confidence, and to convince the rest of the world that the next generation of leaders is capable of maintaining the party's political monopoly.

That is, unfortunately, a tough sell.  Confidence in the party's internal cohesion and leadership has already been shaken by the Bo affair, endemic corruption, stagnation of reform in the last decade, a slowing economy, deteriorating relations with neighbors and the United States, and growing social unrest.  The questions on many people's minds these days are how long the party can hold on to its power and whether the party can manage a democratic transition to save itself.

These questions are by no means the products of idle minds.  By many measures, the party's rule is about to enter a decade of systemic crisis.  Having governed China for 63 years, the party is approaching, within a decade, the recorded longevity of the world's most durable one-party regimes — the former Communist Party of the Soviet Union (74 years), the Kuomintang (73), and the Revolutionary Institutional Party of Mexico (71).  Like a human being, an organization such as the CCP also ages.

In addition, China's rapid economic development has thrust the country past what is commonly known as the "democratic transition zone" — a range of per capita income between $1000 and $6000 (in purchasing power parity, PPP).  Political scientists have observed that autocratic regimes face increasing odds of regime change as income rises.  Chances of maintaining autocracy decrease further once a country's per capita income exceeds $6000 (PPP).  China's has already reached $8500 (PPP).  And nearly all the autocracies in the world with a higher per capita income are petro-states.  So China is in an socioeconomic environment in which autocratic governance becomes increasingly illegitimate and untenable.  Anyone who is unconvinced of this point should take a look at Chinese Weibo (or microblogs) to get a sense of what ordinary Chinese think of their government.

Thus, the answer to the question of the durability of one-party rule in China is clear: its prospects are doomed.

The answer to the question of how a one-party regime can manage its own political transformation to save itself is more interesting and complicated.

Essentially, there are two paths for such regimes: the Soviet route to certain self-destruction, and the Taiwan-Mexican route to self-renewal and transformation.

Since the fall of the Soviet Union, top CCP leaders have resolved not to repeat the Soviet tragedy.  Their policy has been, therefore, resisting all forms of political reform.  The result is, unfortunately, an increasingly sclerotic party, captured by special interests, and corrupt and decadent opportunists like Bo.  It may have over 80 million members, but most of them join the party to exploit the pecuniary benefits it provides.  They themselves have become a special interest group disconnected with Chinese society.  If the fall of the Soviet Communist Party (CPSU) offered any real lessons, they are definitely not the official Chinese narrative that Gorbachev's political reforms brought down the party.  The sad truth is: the Soviet regime was too sick to be revived by the mid-1980s because it had resisted reforms for two decades during the rule of Brezhnev.  More importantly, the CCP should know that, like the millions of the members of the CPSU, its rank and file are almost certain to defect in times of a regime crisis.  When the CPSU fell, there was not a single instance of loyal party members coming to the defense of the regime.  Such a fate awaits the CCP.

That leaves the CCP with only one viable option: the Taiwan-Mexican path of self-renewal and transformation.  The one-party regimes in Taiwan and Mexico are, without doubt, the most successful ones in transforming themselves into multi-party democracies in the last quarter century.  Although the stories of their transition to democracy are different and complex, we can glean four key insights into their successes.

First, leaders in Taiwan and Mexico confronted a legitimacy crisis in the 1980s and realized that one-party regimes were doomed.  They did not deceive themselves with illusions or lies.

Second, both acted while their regimes were stronger than the opposition and before they were thoroughly discredited, thus giving them the ability to manage a gradual transition.

Third, their leaders centralized power and practiced inner-party dictatorship, not inner-party democracy, in order to overcome the opposition of the conservatives within the regime.  In one-party regimes, inner-party democracy will surely lead to an open split among the ruling elites, thus fatally weakening the a reformist regime's ability to manage the transition.  Additionally, making the entire political system more democratic, mainly through competitive elections in cities and states, will provide the ruling elites an opportunity to learn a critical skill: seeking support from voters and winning elections.  Such skills cannot be learned through the dubious exercise of inner-party democracy, which is simply another name for elite bargaining and manipulation.

Fourth, a moderate democratic opposition is the best friend and greatest asset a reformist one-party regime has.  Such an opposition is a negotiating partner and can help the regime maintain transitional stability.  It can also offer much better terms protecting the interests of the ruling elites and even helping them avoid jail.

When we look at the rewards reaped by the KMT and the PRI, they included not only favorable terms for exiting power (except for President Salinas, who was forced into exile because of corruption), none of the senior leaders faced criminal prosecution.  Most importantly, both the KMT and PRI managed to recapture the presidency, the seat of political power in both countries, after spending two terms in opposition.

But can the CCP actually learn from the KMT or the PRI?

Its willingness aside, the CCP faces an additional hurdle.  It is still a totalitarian party, not an authoritarian party.  The difference between a totalitarian party and an authoritarian party is that the former is far more deeply and extensively embedded in the state and the economy.  The CCP controls the military, the judiciary, the bureaucracy, and the economy to a far greater extent that the KMT or the PRI.  Extricating a totalitarian party from a state is far more difficult.  In fact, such a feat has never been tried successfully.  In the former Soviet Union, it led to regime collapse.  In Eastern Europe, democratic revolutions did not give such regimes a chance to try.

So the task for China's new rulers is truly daunting.  Their first order of business is actually not to plunge into a Gorbachev-style political perestroika, but the de-totalitarianization of the Chinese state and the transformation of the CCP into another KMT or PRI.  Without taking this intermediate step immediately, the CCP may find that a Soviet-style collapse is its only future.

I think, based on what a couple of officials, a few academics and some CCP members have told me, that the "de-totalitarianization" of the CCP, itself, is under way, albeit in the sort of "Chinese fire drill" sort of what that seems to characterize almost anything in that HUGE, cumbersome, layered organization. The goal, for the party, is, I think, to make entrance more merit based and then to make advancement more democratic ~ the theory is that if you have the "right" people at the base they can be trusted to select the best leaders from amongst themselves. This is no easy thing: party membership still matters, as a route for the corrupt to advance without too much effort, but, at the same time as party membership remains attractive to those who the party would rather not have in its ranks it is, increasingly, less and less attractive - precisely because it is too closely associated with lazy, corrupt officials - to the very people the leadership wants to recruit.

At the nation-state level some democracy is beginning to appear at the bottom. Many (possibly even hundreds of) free and fair elections are held in villages (many tens of thousands of which exist in China) and even in a few very small towns, every year. They are normally held when the local and provincial (party) officials have made such a mess of things that the provincial leadership concludes that the local people cannot possibly do worse. Results have, I'm told, been mixed: sometimes the new, local, elected government "gets a grip" and sorts things out - in which case the regional and provincial people stand back, embarrassed, and provide little if any support; in other cases things just keep going from bad to worse and more drastic actions are taken. I know, as a fact, that one village (population a few hundred) was totally demolished, the people were forcibly relocated (many to Xinjiang province, I think!) and the land was sold to other people, from other regions, who moved in and established a new community, without elections. I have heard that there is no stomach for democracy above village/small town level.

 

[a_majoor]

More sabre rattling (I hope):

http://www.telegraph.co.uk/news/worldnews/asia/china/9609112/Chinese-paratroopers-storm-island-during-mass-exercise.html

Chinese paratroopers storm island during mass exercise

A recent joint exercise by the Chinese People's Liberation Army is caught on camera, as the world's largest military force mounts a show of strength in response to mounting tension with Japan over disputed islands.

3:05PM BST 15 Oct 2012

One of China's seven military command groups held a joint military drill involving infantry, artillery and air forces to improve the ability of paratroops to land on and capture an island.

The exercise by the Nanjing Military Command is thought to be part of a show of strength by the Chinese military as tensions rise in a three-way dispute between China, Japan and Taiwan over disputed islands in the East China Sea.

The islands are controlled by Tokyo but claimed by Beijing and Taipei, and tensions peaked after the Japanese government recently bought three of them from their private owners.

 

[a_majoor]

A prediction from World Affairs that the regimes in Russia and China may be far more fragile than most people guess. (This is a riff from the usual trope that authoritarian regimes are brittle and prone to collapse when the correct weak spot is struck. Another explanation is the "preference cascade", an interesting topic to Google). The implications are quite profound for all of us, one simple example being the strange faith that many economists and politicians have in the idea of China being able to bail out the global economy. Russia's posturing as a revived Great Power is also based on many flawed assumptions (and in demographic terms, the end game may already be in motion as Russia is expected to lose up to half its population by 2035.

Since this is a long article, it will be broken into 2 parts:

Part 1

http://www.worldaffairsjournal.org/article/coming-collapse-authoritarians-china-and-russia-face-endgame

The Coming Collapse: Authoritarians in China and Russia Face an Endgame

Jackson Diehl

Since the beginning of the twenty-first century, China and Russia have been constants in the world. They have been autocratic, resistant to the spread of freedom, occasionally belligerent toward their neighbors, and increasingly prosperous. They have consistently joined together in order to block Western initiatives in the UN Security Council and to defend dictatorships like Iran, North Korea, and Syria.

The two countries have created the illusion of durability. Vladimir Putin has just begun a six-year presidential term, with an option for another. Hu Jintao and Wen Jiabao are planning to hand over power in October to a new tandem, Xi Jinping and Li Keqiang, who are expected to serve for ten years. Yet the evidence is growing that the apparent stability in Russia and China is untenable. For similar reasons, the two states have exhausted their current political and economic systems. Their rulers have grown rigid and are mired in corruption. Both their political elites and their average citizens are growing visibly restless. In the next decade, it is likely that one or both of these global powers will undergo an economic crisis and a dramatic political transformation. When and how it will happen is the most important “known unknown” that Barack Obama or Mitt Romney will face during the next US presidential term.

The predictions that systemic change is inevitable, and that it might be tumultuous, are coming not just from lonely dissidents or hostile Western observers but from stalwarts of the establishments in Moscow and Beijing. In February, a report prepared by experts from China’s Finance Ministry and the Development Research Center of the State Council, in cooperation with the World Bank, concluded that “China has reached a turning point in its development” and that a “strategic” and “fundamental shift is called for,” comparable to Deng Xiaoping’s embrace of the market economy three decades ago. “China 2030” warns:

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Today’s major world conflicts—autocracy versus democracy; the West versus the China-Russia axis; Iran and its allies versus the US, Israel, and “moderate” Arab states—intersect and collide in Syria, where sectarianism’s ancient hatreds may well tip their outcomes.
There is a broad consensus that China’s growth is likely to slow, but when and at what pace is uncertain and there is no saying whether this slowdown will be smooth or not. Any sudden slowdown could unmask inefficiencies and contingent liabilities in banks, enterprises and different levels of government—heretofore hidden under the veil of rapid growth—and could precipitate a fiscal and financial crisis. The implications for social stability would be hard to predict in such a scenario.

Similarly, in late May a group of experts convened by Aleksei Kudrin, a mainstay of the Putin government for more than a decade until his resignation last year, issued a report declaring that “research shows that the crisis” in the Russian economy and political system “has become irreversible, regardless of the scenarios of its further development. Maintaining political stability, let alone a return to the pre-crisis status quo, is no longer possible.” In a press conference, Kudrin said there was a fifty-percent chance that Russia was headed for a recession that would produce a political breakdown and a change of government.

Despite such auguries, the Obama administration continues to pursue a policy toward both Russia and China that assumes that the existing power structures will continue indefinitely. Its primary aim is to “engage” the top leaders on a transactional basis—a strategy that, for Obama, has become a quasi-ideology in foreign policy. Thus did he welcome Xi to Washington in February with talks that focused on economic issues and geopolitical cooperation—and ignored the incipient domestic political turmoil in China that had prompted a senior police official from the city of Chongqing to seek asylum in a US consulate days earlier, in a development that would soon become a full-blown leadership crisis.

After Putin’s controversial election as president in March, Obama, overlooking the growing street protests in Moscow, invited him to an early meeting at Camp David (which Putin later cancelled) and dispatched National Security Adviser Thomas Donilon to Putin’s dacha outside Moscow to deliver what a Russian official described as “a multi-page detailed document, whose main message is that Obama is ready to cooperate with Putin.”

While critiquing these advances, Mitt Romney’s presidential campaign also appeared unprepared for the possibility of upheaval in Russia or China. The GOP candidate described both countries not as unstable autocracies but as dangerous powers to be contained. He claimed that Russia “is without question our number one geopolitical foe,” and promised to designate China as a currency manipulator, subject to trade sanctions, on his first day in office.

In short, it appears that neither Obama nor Romney is contemplating the possibility that Russia or China could become destabilized in the next several years, with all of the opportunities and dangers that would pose for the United States. Such shortsightedness is hardly unprecedented: George H. W. Bush denied the possibility of revolutionary change in the Soviet Union and the former Yugoslavia until it occurred, and Obama himself was blindsided by the Arab revolutions of 2011. Yet by now, after witnessing the successive collapses of dictatorships over a quarter century in Latin America, East Asia, Eastern Europe, and the Middle East, US policymakers should know better than to assume that the autocracies of Russia and China are invulnerable. The next administration ought to be prepared for, and encouraging of, changes in both these countries.



Revolutions are, of course, unpredictable. Some regimes fall sooner than seemed possible until the event occurs; some linger long after their demise has become inevitable. But the recent history of unfree countries has shown that while breaking points are hard to anticipate, there is a common set of conditions that sets the stage for change. Perhaps most important is the emergence of a middle class with growing non-material expectations, along with the exhaustion of the economic model that produced that class. There is the deterioration of the old elite, which is weighed down by corruption and paralyzed by power struggles. There are factors that can accelerate change, ranging from failure in war and environmental degradation to demographic implosion and the proliferation of technologies that allow citizens to communicate and to organize in spite of official repression.

From a distance, Russia and China may seem immune to these conditions. For now, both economies appear to be relatively prosperous compared to sickly neighbors like the European Union and Japan. Both have large foreign reserves: $500 billion in Russia and $3 trillion in China. Though there have been regular street protests in Russia since late last year, and a visible power struggle has been under way within the Chinese leadership, neither regime appears to be in imminent danger of collapse. In foreign affairs, the two governments exude confidence, even arrogance: at mid-year, China was bullying neighbors like the Philippines in the South China Sea, while Russia was propping up the Syrian dictatorship of Bashar al-Assad in defiance of the United States, Europe, and the Arab League.

Upon closer examination, however, both governments are saddled with economies that have lost their most dynamic means of growth. They are facing the imperative of far-reaching restructuring in order to avoid stagnation or recession in the coming years; but it’s questionable whether either regime has the strength to push through the changes necessary to hold off crisis. Meanwhile, by the summer of 2012 each faced the possibility that a recession in Europe would spread eastward, inducing a “hard landing” for their economies at a sensitive political moment.

For Russia, the dilemma is summed up in the prices of oil and gas, and the role those two commodities have come to play during the Putin era. When Putin first took office in 1999, oil and gas earned less than half of Russia’s export revenue. Now that share is more than two-thirds. In part this increase is due to rising prices and production, but Russia has also deindustrialized under Putin. According to a report in Business New Europe, this year the country gave up the effort to maintain its own auto industry, and stopped producing the Lada sedan. The company that manufactures the iconic AK-47 rifle went bankrupt, largely because of its failure to develop a more modern version of the Kalashnikov. And a new civilian passenger jet promoted by Putin as an answer to Boeing and Airbus flew into a mountainside during one of its first demonstration flights, killing the deputy transport minister of Indonesia and forty-four others and throwing its future into question.

Now the energy industry itself is declining. From 2000 to 2004, Russian oil and gas production grew by an average of 7.5 percent per year as private companies flourished and foreign investors bought in. But following Putin’s political crusade against magnates like Mikhail Khodorkovsky and mistreatment of Western oil firms, the average increase dropped to 1.4 percent between 2005 and 2011. Foreign capital needed to increase production will be difficult to attract, given Putin’s record, and the development of large new oil and gas reserves in Europe and the United States has further dimmed the prospect for export revenues in the next few years.

At the same time, the Russian government budget has become more dependent than ever on oil and gas. Energy revenue pays for more than half of government spending—and that spending has mushroomed from fifteen percent of GDP four years ago to nearly a quarter this year. Putin has compounded the problem by promising vast new outlays: a doubling of the wages of doctors, police, and teachers; higher payments to families; and $790 billion in new defense spending.

Russians now commonly measure the state of the economy by calculating the price of oil needed to balance the state budget. In 2008 it was $55 a barrel; in 2011 it was $100. Now experts guess that it would take an average price of $117 to cover this year’s planned spending, and somewhere between $130 and $150 a barrel to meet Putin’s promises for the next several years.

Within weeks of beginning his new mandate, with oil prices well under $100, Putin was already hinting that the budget would be scaled back. The question was whether he could avoid the swelling of public unrest that austerity might provoke. Two major polls, by the Pew Global Attitudes Project and the Associated Press, released in May and July, showed that while Putin remained relatively popular among the general population, support for him in Moscow and other big cities had plummeted—and the demand for political freedom, and support for ongoing popular protests, had expanded.

Backed by eighty percent of the population as recently as 2008, Putin now attracts overall support of fifty-eight percent, reported the AP—and only thirty-eight percent in Moscow. Since 2002, according to Pew, “five of the six measures of democratic freedom tested by the Global Attitudes Project have witnessed double-digit increases in terms of the percentage of Russians describing them as ‘very important.’” Only thirty-one percent say they are satisfied with the state of democracy in the country—and sixty-four percent describe the economic situation as bad. A solid majority of fifty-eight percent said they supported the post-election opposition street demonstrations.

At midyear, Putin still looked relatively strong, because the largely middle-class freedom protesters gathering in Moscow had not been joined by blue-collar workers, and rural areas were not as restless as the cities. But with the Internet’s stream of uncensored information rapidly growing, that seemed unlikely to last. According to the AP, the percentage of Russians using the Internet daily has grown from twenty-two to thirty-eight percent in just two years.

Kudrin’s report outlined several scenarios for the future, chief among them “modernization through dialogue between the government and opposition,” stagnation, and a “chaotic radical transformation of power.” The director of the study, Mikhail Dmitriev, of the Center for Strategic Research, was quoted by the news agency RIA Novosti as saying that “the most likely scenario is mounting pressure on protests” by the regime, “eventually resulting in public backlash and sudden transformation of power.”

 

[a_majoor]

Part 2:

http://www.worldaffairsjournal.org/article/coming-collapse-authoritarians-china-and-russia-face-endgame

Few in Beijing are predicting such a political explosion, and the economy there is far stronger. But China suffers from the same fundamental problem of declining economic returns and rising demands for personal and political freedom. The country’s vaunted export-oriented growth model, which brought five hundred million people out of poverty in just thirty years, seems to have run its course. Having peaked in 2007 at ten percent of GDP, the current-account surplus, the broadest measure of trade, was just 2.8 percent of GDP in 2011, or $201 billion, according to a recent report in the Economist magazine—less than that of Germany. This year, exports are not contributing to GDP growth.

In the last five years, the Hu regime has managed to sustain that growth only by launching one of the largest government stimulus programs in world history. According to the Economist, investment as a share of GDP increased by six points between 2007 and 2010; lending rose from one hundred and twenty-two percent of GDP to one hundred and seventy-one percent between 2008 and 2010. State-run enterprises controlled most of the money flow, pouring borrowed cash into housing construction and other speculative investments. In 2011, spending on plant, machinery, buildings, and infrastructure made up an amazing forty-eight percent of China’s GDP.

Beijing launched another stimulus in the spring of 2012, when the economy showed signs of a sharp slowdown. But few economists in or outside the government believe the policy is sustainable. Some think the forests of apartment towers rising around dozens of Chinese cities reflect a real estate bubble that will eventually pop, bringing with it the “hard landing” and social destabilization that the authors of “China 2030” warned of. Even if that does not happen, the lending and investment binge will have to slow—and some new formula for growth will replace it.

There is little disagreement among economists about what is needed. China will have to shift its growth engine from exports and domestic investment to consumer spending. There is plenty of room for this; household consumption currently makes up only a third of GDP, compared to seventy percent in the United States. Vast sums could be spent on upgrading Chinese health care, especially for skyrocketing numbers of seniors; on a social safety net for the poor and unemployed; and on education. Financial markets must be liberalized and average Chinese allowed to purchase shares and bonds, including in foreign markets. Both wages and interest rates on savings need to rise.
As “China 2030” puts it:

It is imperative that China adjusts its development strategy as it embarks on its next phase of economic growth. At its core, this adjustment requires changing the role of government and its relations with the market, the private sector, and society at large . . . . The government will need to transform itself into a lean, clean, transparent and highly efficient modern government that operates under the rule of law.

The problem with implementing such an agenda is that it will require a dramatic change in the orientation of government, which is now heavily bound up with state-owned enterprises, big manufacturing exporters dependent on cheap labor, a huge bureaucracy, and other status quo interests.

Even the party’s planners don’t believe it will be possible for the Chinese Communist Party to push through such a transformation without political reform that, as the report puts it, makes the emerging middle class “a major force in promotion of harmonious development.” As the authors of “China 2030” explain:

If the experiences of other countries is any guide [sic], the rising ranks of the middle class and higher education levels will inevitably increase the demand for better social governance and greater opportunity for participation in public policy debate and implementation. Unmet, these demands could raise social tensions; but if the government finds ways to improve consultation and tap the knowledge and social capital of individuals and nongovernment agencies, these demands can be transformed into a positive force.

So far, China’s middle class has not followed Russia’s into the streets. But its Internet burns with restlessness; more than two hundred and fifty million Chinese now have accounts on microblogging sites such as Sina Weibo, the Chinese version of Twitter. Even a vast state censorship operation has been unable to prevent outpourings of critical commentary on events like a high-speed train crash, a food safety scandal, or the treatment of blind dissident Chen Guangcheng after he sought refuge in the US Embassy in May. The purge of Chongqing governor Bo Xilai in March prompted months of feverish online commentary and speculation—including outbursts from angry supporters of the disgraced populist.

During a reporting trip to Beijing, Shanghai, and the interior city of Changsha in May, I was struck by the openness with which Chinese intellectuals, journalists, and even government officials spoke about the need for political as well as economic change. Their hope was that a destabilization of the regime could be headed off by a top-down reform process that would begin with greater press freedom and acceptance of a grassroots civil society independent of the Communist Party. “This is the time to do something, and to do it incrementally,” said Shen Dingli, the dean of the Institute for International Studies at Fudan University, whom I met in Shanghai. “If you reform, you have immediate challenges. But if you don’t reform, you will have even bigger challenges. The top leaders all know this.”



In fact, the top leaders of both Russia and China have repeatedly and publicly acknowledged the trouble they are facing. In one of his last major speeches in March, outgoing premier Wen Jiabao told the National People’s Congress that China “has come to a critical stage” in which “without successful political structural reform . . . new problems that have cropped up in China’s society will not be fundamentally resolved.”

For his part, Vladimir Putin published an op-ed in the Washington Post last February in which he declared: “Our society is completely different from what it was at the turn of the 20th century. People are becoming more affluent, educated and demanding. The results of our efforts are new demands on the government and the advance of the middle class above the narrow objective of guaranteeing their own prosperity.”

Putin and his deputy, Dmitri Medvedev, and Wen as well, have been making such speeches for years—and still have taken no significant action to liberalize the political order. On the contrary, Putin launched an offensive against his opposition after his election, pushing through new laws to punish protesters with heavy fines and to curtail the activity of nongovernmental groups. Though it allowed Chen to leave the US Embassy for the United States in May, China has been stepping up prosecutions of dissidents and trying to tighten control over the Internet ever since the Arab Spring revolutions began in early 2011.

Putin conceded a primary reason for these reactionary approaches during a June speech on the economy. After calling the dependence of the budget on oil prices “the Achilles’ heel of our economy,” and conceding the desperate need to attract foreign investment into the energy industry, he added: “Unfortunately corruption is without exaggeration the biggest threat to our development. The risks are even worse than the fluctuation of oil prices.”

In fact, corruption paralyzes the Kremlin. The political system cannot be opened up without exposing the criminal networks that have infected every part of the bureaucracy, siphoning off billions of dollars in what should be public revenues. By many accounts Putin and his inner circle have participated robustly in the looting; but even midlevel officials have stolen hundreds of millions with impunity. More than a dozen prominent journalists and human rights activists have been murdered in the last decade—including one on Putin’s birthday in 2006. A more open system would inevitably lead to demands for accountability that would imperil Putin and most of those around him.

China’s leadership has similar vulnerabilities. After the purge of Bo—one of the rising party “princelings,” or heirs of past Communist leaders—Western news accounts chronicled how his wife and other relations had built up a vast business empire, and allegedly murdered a British businessman in order to protect it. An investigation by Bloomberg News in April found that Bo’s family had accumulated $136 million in assets. In June, Bloomberg reported finding an even larger fortune controlled by the extended family of incoming leader Xi Jinping—prompting a paroxysm of censorship of such reporting on the Chinese Internet. If China liberalizes its media, Xi surely will be asked to explain how his family came to own, for example, seven properties in Hong Kong, reported by Bloomberg to be worth $55 million.

A forward-looking US policy would aim at putting pressure on these obstacles to change. A good model is the bipartisan Magnitsky Bill, which has been moving through the US Congress this year. It mandates visa revocations and an asset freeze for Russian officials who are guilty of killing or persecuting people fighting corruption or abuses of human rights. It is named for Sergei Magnitsky, a lawyer who uncovered a $230 million embezzlement scheme by tax and Interior Ministry officials and then was imprisoned by those same officials and subjected to mistreatment that caused his death in 2009.

Tellingly, the prospect of such sanctions has shaken Moscow to its core. Putin issued a directive in May that listed stopping the bill as a top priority in relations with the United States. Equally remarkable, the Obama administration chose to take Putin’s side, and lobbied heavily on Capitol Hill to block the legislation.

Obama clearly still hopes that in a second term he will be able to strike deals with Putin, starting with a new treaty to reduce nuclear arms. He will seek to forge an early partnership with Xi as well, focused on reducing trade frictions and stopping the nuclear programs of North Korea and Iran. Rhetorically, Romney promises a harder line. But neither is prepared for the hard landing many Russians and Chinese see in their near future.

Jackson Diehl is the deputy editorial page editor of the Washington Post, where the column from which this article was expanded originally appeared.

 

[Edward Campbell]

While China's 3rd quarter GDP growth has slowed to 7.4%, the morning news says that industrial output is up by 10%, year on year, from Jan to Sep 2012, suggesting, to some analysts, that the worst of the slump is over.

The key indicator, I have been told by a Chinese official, is GDP growth of or above 8% until about 2020 ~ when the middle class is expected to be secure in Eastern China and in a majority position in the central provinces ~ Social Harmony is all important to the Chinese leadership and it, the leadership, recognizes that its hold on power is tenuous and rests only on its perceived capacity to make things "better."

 

[Edward Campbell]

More on Canada, China and the CNOOC/Nexen deal, reproduced under the Fair Dealing provisions of the Copyright Act from The Diplomat, a journal specializing in Asia-Pacific affairs:

http://thediplomat.com/china-power/canada-punts-on-cnooc-nexen-decison/

China, Canada and Oil Sands

By Hugh L. Stephens

October 17, 2012

Last week the Government of Canada kicked the CNOOC-Nexen can down the road for another 30 days, delaying the decision for up to a month after the statutory 45 day review period for the friendly takeover had elapsed. The government can make a decision within this 30 day extension or announce a further 30 day delay with CNOOC’s agreement. Meanwhile, Nexen shareholders overwhelmingly approved the deal, which is not surprising given the premium that state owned CNOOC is willing to pay. If this is such a good deal for Nexen’s shareholders, and will allow CNOOC to further bring its deep pockets to the Canadian oil patch, then why the delay?

CNOOC’s bid poses a bit of a conundrum for Prime Minister Stephen Harper’s government. It is busy developing a closer relationship with China and Asia generally, and wants to make the point that Canada is open for business, especially after BHP was actively discouraged from pursuing its bid for Canada’s largest potash enterprise. At the same time, there has been a lot of negative commentary focusing on the fact that CNOOC is not just a state owned enterprise (SOE) but is a Chinese SOE. Supporters of the deal have pointed out that other SOEs are active in the Canadian oil industry, such as Norway’s StatOil, which is 67% owned by the Government of Norway, but Norway and China trigger very different reactions from Canadians. A survey earlier this year by the Asia Pacific Foundation of Canada found that a majority of Canadians would oppose deals in which state controlled companies attempted to buy a controlling stake in a Canadian company (unless it was a UK SOE, where only 39% disapproved). That number reaches 75% where companies controlled by the Chinese government are concerned.

This sensitivity about the activities of Chinese companies was highlighted by the recent report of the U.S. House of Representatives Intelligence Committee accusing Huawei Technologies of being a security threat because of its close ties to the Chinese government. Almost certainly not coincidentally, a few days later the Canadian government, without naming Huawei, announced that a “national security exemption” would be applied to firms seeking to bid on a secure communications network for Canada.

The Official Opposition party, the New Democrats, have come out squarely against the CNOOC-Nexen deal, but even some of Mr. Harper’s Conservative MPs have expressed reservations. As for Harper himself, he has conceded that the review raises tough policy issues, but has maintained that the decision will be made on the basis of “net benefit” to Canada. The net benefit test is one of the reasons there is so much uncertainty over the case, since it is at best subjective. As the term suggests, under the Investment Canada Act net benefit is determined by “measuring the aggregate net effect after offsetting the negative effects, if any, against the positive ones.” Factors that are taken into account include whether the non-Canadian SOE adheres to Canadian standards of corporate governance (including, commitments to transparency and disclosure, independent members of the board of directors, independent audit committees and equitable treatment of shareholders), and to Canadian laws and practices, as well as factors such as whether a Canadian business to be acquired by a non-Canadian SOE will continue to have the ability to operate on a commercial basis regarding where to export; where to process; the participation of Canadians in its operations in Canada and elsewhere; support of ongoing innovation, research and development; and the appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position.

There is no doubt that some hard bargaining is going on with CNOOC, and conditions will certainly be imposed. It is unlikely that the deal will be blocked but the real test will be how onerous the conditions are, and whether CNOOC will be prepared to swallow them. Ultimately China badly wants increased access to the oil sands (it already has a minority stake in the Long Lake oil sands project in partnership with Nexen), but not at any cost. However, it is prepared to make a number of concessions to secure approval, and potentially pave the way for future investments.

For its part, Canada will have to impose conditions that show it has given public concerns about Chinese investment serious consideration, but not make them so onerous that they will force the Chinese to lose face and scare them off. Canada needs huge amount of new investment to continue to develop its oil sands fields, just as it needs new investment to move the product to new markets in the face of a growing glut in North America.

While allowing the deal to proceed makes sense from an economic standpoint for both China and Canada, navigating the political minefields will be tricky. For both parties the stakes are high and the decision now hangs in the balance. I believe it will be approved and both sides will declare victory. We should know for sure in about a month.

Hugh L. Stephens is Executive-in-Residence at the Asia Pacific Foundation of Canada Home | Asia Pacific Foundation of Canada and Principal of TransPacific Connections (TPC Consulting ) |tpconnections.com. He is based in Victoria, BC, Canada.

The whole Canada/China relationship is both complex and evolving and, as Hugh Stephens says, politically and economically tricky.

I happen to favour the Nexen deal, but I am, generally, favourable to any and all freer trade deals; my reading of history (not economics) persuades me that freer trade produces greater prosperity and, albeit more tenuously, greater prosperity is more likely produce peace.

 

[GAP]

I happen to favour the Nexen deal, but I am, generally, favourable to any and all freer trade deals; my reading of history (not economics) persuades me that freer trade produces greater prosperity and, albeit more tenuously, greater prosperity is more likely produce peace.

There was an article yesterday in, I think, the Vancouver Sun, that was pointing out that there were Chinese mining companies in northern BC that was advertising for only  Mandarin speaking applicants. There are plenty of skilled mining folks out there, few speak Mandarin.

This focus does not bode well for future Chinese investments in Canada if little if any effort is going to be made in operating in the English language. That becomes problematic.

 

[The Bread Guy]

There was an article yesterday in, I think, the Vancouver Sun, that was pointing out that there were Chinese mining companies in northern BC that was advertising for only  Mandarin speaking applicants. There are plenty of skilled mining folks out there, few speak Mandarin.

The mining media is covering this angle as well....

In unveiling Canada’s British Columbia’s job-creation strategy last year, Premier Christy Clark said the government planned to capitalize on high demand for minerals, especially in Asia, by opening up eight new mines in the next four years and expanding nine more by 2015.

What Clark didn’t specify was who would be employed on those mines, said labour lawyer Sarbjit (Bobby) Deepak in a letter to the Vancouver Sun last February.

The answer to his question became clearer last week, as reports unveiled that an initial group of 200 Chinese citizens will begin to arrive in coming weeks to work at new mines in the western Canadian province.

The full time workers – whose number could grow to as many as 2,000 eventually – follow $1.4 billion in Chinese funding for two of four coal projects in the northeast of the province announced last year.

The Asian coal mining companies that are staring business in B.C. have been accused of favouring Chinese applicants to fill available positions. Questioned by a local journalist who writes for The Province, the firms claimed it was a mistake that some of their local want ads demanded Mandarin language skills for jobs at their mines.

“The companies say they tried — and failed — to find Canadians to work at the mines, so the federal government is allowing them to bring in the ‘temporary’ Chinese miners as a result,” writes Michael Smyth.

He reveals that some of the ads clearly stated the companies were looking for workers who speak Mandarin, a requisite that would clearly leave the majority of Canadian applicants out.

"This single reference to Mandarin was an isolated and unanticipated case," Jody Shimkus, a spokesperson for HD Mining International, told me in a statement.

"This ad was never meant to suggest there was a language requirement for Mandarin."

But the "isolated" error was repeated in at least four ads.....

 

[Edward Campbell]

This, reproduced under the Fair Dealing provisions of the Copyright Act from the South China Morning Post, is interesting:

http://www.scmp.com/news/china/article/1063786/beijing-cancelled-visa-former-us-ambassador

Beijing cancels visa of former US ambassador Jon Huntsman
Beijing cancels the visa of former US ambassador Jon Huntsman, who was set to speak in Shanghai last month, according to an interview by Foreign Policy on Wednesday.

SCMP Staff

Thursday, 18 October, 2012

Beijing cancelled the visa for former US ambassador Jon Huntsman, who was set to speak in Shanghai last month, according to an interview by Foreign Policy published on Wednesday.

Huntsman, a former governor in the US and Republican presidential candidate, was invited to speak at the World Money Show convention in Shanghai. The government intervened and pressured the organisers to disinvite him, said the interview.

Huntsman believed his tendency to criticise the Chinese government on human rights and other issues was too risky for the Chinese Communist Party, especially amid a sensitive time ahead of its leadership transition.

“And at a time of leadership realignment, the biggest deal in 10 years for them, they didn’t want the former U.S. ambassador saying stuff that might create a narrative that they would have to fight,” he told Foreign Policy.

The Chinese Communist Party’s 18th Congress is scheduled to start in Beijing on November 8. A new generation of leaders, including Xi Jinping and Li Keqiang, are expected to be placed in the Party’s top positions, replacing the current leadership headed by Hu Jintao. It’s seen as the most significant leadership transition for China in decades.

I think Gov Hunstman is giving himself too much credit. The Chinese understand that, even though they don't like, the incessant China bashing is a fixture of US elections ~ China has replaced the USSR in US rhetoric. I think that denying Hunstman a platform in Shanghai was directed at Japan and South Korea.

 

[tomahawk6]

A slight detour into the military realm for a moment. The addition to the PLAN fleet of a carrier is a milestone for sure. An expensive one. Other carriers are either in the works or are in the planning stage [no pun intended]. China is in the process of transitioning from a coastal fleet to one that can provide an intervention capability. The PRC has a long way to go to catch up to US seapower.

 

[Edward Campbell]

Staying with military news, the Financial Times reports that: Beijing launches military exercises.

The report says, "The Chinese navy started a joint exercise with civilian maritime agencies in the East China Sea on Friday simulating a clash with rival claimants of disputed waters ... The drill is being read as a warning signal to Tokyo, with which Beijing is embroiled in a dispute over the nearby Senkaku, or Diaoyu Islands, which are controlled by Japan but also claimed by China and Taiwan ... According to the statement, the simulated scenario includes a collision in which the Chinese ships are damaged and some patrol staff are hurt and fall into the water. The East Sea Fleet then “sends a frigate, a hospital ship, a tugboat, advanced fighters and helicopters for support, cover and emergency rescue” ... China regularly holds maritime drills at this time of year. But the announcement comes after a long-running dispute between Beijing and Tokyo over the tiny archipelago off the Eastern coast of Taiwan escalated when Japan agreed a deal to buy some of the islands from their private owner last month."

 

[Edward Campbell]

Inside China, there is a move to strengthen the Coast Guard according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the semi-official China Daily:

http://www.chinadaily.com.cn/opinion/2012-10/19/content_15829994.htm

Need for unified coast guard

Updated: 2012-10-19

By Gong Jianhua ( China Daily)

The Diaoyu Islands dispute between China and Japan has been grabbing the headlines. But beyond the top news, some neighboring countries have encroached on China's islands and reefs, harassed and detained Chinese fishermen, and are exploiting China's oil and gas resources in the South China Sea. Disputes between China, and the Republic of Korea and other countries have also been reported.

These developments make it extremely important for China to strengthen its maritime law enforcement forces and conduct regular cruise surveillance in its waters.

It is becoming increasingly difficult for China to safeguard its maritime rights. Some of its neighbors have triggered sovereignty disputes over islands and reefs, maritime boundaries and exclusive economic zones. The interference of major external powers in these disputes have complicated matters further for China.

Though the use of naval and air forces to deal with the disputes is not advisable, maritime law enforcement forces can help defuse the crises and prevent potential conflicts. But China's maritime law enforcement agencies are not strong enough to safeguard the country's maritime rights.

The United States has the world's most powerful coast guard., Japan's coast guard is strong, well-equipped and experienced; The ROK coast guard, too, is considerably powerful.

China, however, has five maritime law enforcement agencies: the Coast Guard of the Public Security Ministry, the Maritime Safety Administration of the Transport Ministry, the Marine Surveillance of the State Oceanic Administration, the Fisheries Law Enforcement Command of the Agriculture Ministry, and the State and General Administration of Customs. They are often referred to as the "Five Dragons".

Though the "Five Dragons" have been playing an important role in safeguarding China's maritime rights, it is becoming increasingly difficult for them to handle unexpected crises. Also, they are not under a unified management of the State, which could be hampering their functions.

Japan dared to arrest Chinese fishermen and "purchase" the Diaoyu Islands, and thus inflame the dispute with China, not only because it controls the islands but also because it has a strong, well-equipped coast guard.

In contrast, the "Five Dragons" are not capable and experienced enough to handle large-scale emergencies at sea independently. Given its long coastline and huge maritime area, China has put itself in a passive and disadvantageous position by not strengthening its maritime law enforcement agencies. If China does not take immediate remedial measures, it is likely to be caught on the wrong foot in case a large-scale maritime conflict breaks out.

On the face of it, the "Five Dragons" appear to have a clear-cut division of responsibilities and each performs its own functions. The fact is otherwise, their responsibilities overlap and they have difficulty in communicating and coordinating with each other. The cost of law enforcement is high and efficiency is low. The "Five Dragons" also face difficulty in communicating and cooperating with their foreign counterparts. Therefore, it is imperative for the government to establish a reasonably structured "China Coast Guard" with clear-cut functions and full authority.

But at present, the top priority for China is to establish a foolproof information-sharing system for the existing maritime law enforcement departments in order to strengthen their cooperation and ensure cohesion during emergencies as well as normal times. In this way we can first exploit the advantages of each department to the full and then achieve functional integration step by step.

For example, we can give full play to the China Marine Surveillance and the Fisheries Law Enforcement Command, which have comparatively more patrol vessels, to conduct routine cruises and maintain order in the waters under China's jurisdiction. The Fisheries Law Enforcement Command could be asked to maintain fishing rights, protect Chinese fishermen and deal with fisheries disputes.

At present, the Coast Guard of the Public Security Ministry is the only armed law enforcement agency among the "Five Dragons", which makes it the most important force safeguarding the country's maritime rights and interests. Since it is mainly responsible for fighting crime at sea, including piracy and terrorism, it needs more funds to modernize and build itself into a strong force.

Of course, the formation of a unified "China Coast Guard" is a huge project, for which the central leadership has to break down departmental barriers, eliminate sectoral interests and promote a top-to-bottom formation.

But before that, the government could give the green light to system planning, structural design and function reconstruction. Maritime law enforcement functions should be put under a unified command, and the operations, powers and responsibilities of the "Five Dragons" should be specifically spelt out. Only by properly implementing and streamlining the process can we take the first step toward building a unified, powerful "China Coast Guard".

But to do that, the government has to integrate the "Five Dragons", train and cultivate more law enforcement personnel, and improve the weaponry and equipment. This will not only narrow the forces' gap with developed countries but also make it strong enough to deter marauding countries.

And after the establishment of a unified and strong "China Coast Guard", the government should ensure its personnel train, whenever possible, in conjunction with the navy and set up a seamless intelligence network and an information-sharing mechanism. The establishment of a unified "China Coast Guard" is a real need, and the earlier it is done the better it will be for the country.

The author is a professor at the School of Politics and Public Administration, Guangdong Ocean University.

It should be noted that professors, like Gong Jianhua, are often used as stalking horses by different factions within the Party. They write articles in both the Chinese and foreign language media advocating this, that or the other policy proposal. This proposal, to unite the "Five Dragons" into a stronger, para-military Coast Guard is likely to attract some public and political support.

 

[Edward Campbell]

The Global Times is a subsidiary of the semi-official China Daily; it publishes both Chinese and English editions; it differentiates itself from its parent by being populist and bellicose; it is not reflective of official China nor, as far as I know, is it used as a public sounding board for internal to the CCP debates. But: it does, maybe fairly accurately, reflect one part of the Chinese street which is chauvinistic and bellicose.

That being said, here is a pretty forceful opinion piece, reproduced under the Fair Dealing provisions of the Copyright Act from the Global Times:

http://www.globaltimes.cn/content/739456.shtml

Japan must adapt to China’s navy moves

Global Times
2012-10-20

By Global Times

The joint exercise involving the PLA Navy and civilian law enforcement ships conducted Friday in the East China Sea came as a surprise for Japanese media, which believe the move is due to the deteriorating situation between the two countries over Japan's "nationalization" of the Diaoyu Islands.

There is no need to object to the speculation by Japanese media. The exercise has sent a clear message to the outside world, that China is ready to use naval force in maritime conflicts.

The country lacks experience in law enforcement on the sea, however, the odds of friction during maritime law enforcement incidents has been on the increase.

China is not interested in flexing its muscles on the sea while it is preoccupied with economic development. For years, it has been, and still will be, showing restraint during frictions on its borders. But this does not mean China "fears" Japan, Vietnam or the Philippines.

This time the drill involved the navy. Next time it may well expand to missile forces in a bid to increase the level of deterrence and the range.

The frequent territorial conflicts in recent years have disrupted China's previous policy that insisted on "putting aside disputes for the time being." The government has learned to launch "counter measures" one after another.

The outside world, as well as ourselves, have been adapting to a "tougher" China that has become more resolute in safeguarding its sovereignty and interests. Some predicted this change would ruin the hard-won international situation after China's reform and opening-up process over the past few decades. The prediction did not come true.

The country will only become more skillful in dealing with more provocations. What's more, the Chinese people have increasingly begun to think that some countries have been underestimating the consequences of angering China, and China needs to teach them a lesson. This growing public sentiment may pressure the government to change its diplomatic policies.

Chinese people believe there is unlikely to be any major war in the Asia-Pacific region, because China has no intention of starting one, nor will the US, we believe. A conflict in this area would be a brief brawl, in which the weaker country is more likely to suffer.

China, the most powerful country in this region, has in the past been the strongest voice urging parties to "set aside disputes." The Philippines, Vietnam and Japan, on the contrary, were more bellicose. This is not normal.

Japan has to realize the fact that it has always been a small country compared to China, and in the future it will still only be another Vietnam or Philippines. It is better for Japan to show some respect, or it is asking for trouble.

While one should not, I guess, read anything official into this, I also guess that a goodly segment of the Chinese people feel this way. Those anti-Japanese demonstrations, which sometimes get violent, are arranged and authorized and even supported by the government but the people are not forced to participate: they come out, in large numbers, voluntarily because anti-Japanese sentiments run very deeply amongst the Chines people - with some very good reasons.

Just one of tens of thousands of authentic photos of Japanes
barbarism in Nanjing in 1937

It is also reported in the Japanese media that this is different from the 'normal' anti-Chinese sentiments. Japanese Ambassador to Beijing Uichiro Niwa says that “Now, Chinese TV programs constantly show the Japanese flag and a photo of my face ... and the TV says in simple language that Japan is a thief who stole Chinese territory. Even elementary school children can connect the flag, theft and my photo. In China, I am feeling like I'm the ring leader.” He warns that the two sides must resolve this or risk 40 years of progress in normalizing Sino-Japanese relations.

While I remain firmly convinced that the Chinese government is not interested in anything like a war, or even a small armed spat, with Japan, it risks letting this escalate out of control on the street, and media, like Global Times are making things worse.

China does not have a "free press" but nor does the government have anything like full control over the media.

 

[Edward Campbell]

Just to emphasize the point that the Chinese government, neither national nor provincial, orchestrates everything, the Taiwan newspaper China Times (which is moderately pro-unification) reports large (10,000 civilians vs 3,000 police) demonstrations in Hainan province (an island province in the South China Sea) over a proposed, by the government, coal fired power plant. The people don't always get their way, but such spontaneous, anti-government demonstrations are actually quite common in China - an official told me that there were thousands, most likely tens of thousands, each year, maybe hundreds on most days across the country.

 

[57Chevy]

An interesting article from Hang the Bankers and shared with fair use provisions of The Copyright Act
on the Senkaku Islands dispute with maps showing the claimed boundarys.

The real reason China and Japan are disputing the islands: Oil and Gas !!
http://www.hangthebankers.com/the-real-reason-china-and-japan-are-disputing-the-islands-oil-and-gas/

 

[Ignatius J. Reilly]

With regards to the Senkaku/Tiaoyutai islands, it is interesting how the Chinese government actually views the islands as part of Taiwan, and how it's claim to the islands is based upon it's claim to Taiwan.