• Thanks for stopping by. Logging in to a registered account will remove all generic ads. Please reach out with any questions or concerns.

Chinese Military,Political and Social Superthread

The Economist is perplexed by what's going on in China according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from that newspaper:

http://www.economist.com/blogs/freeexchange/2015/07/chinas-stockmarket-crash?fsrc=scn/fb/te/bl/ed/aredflag
the-economist-logo.gif

China's stockmarket crash
A red flag

Jul 7th 2015, 9:36 BY S.R. | SHANGHAI

CHINA is certainly not the first country to try to prop up a falling stockmarket. The central banks of America, Europe and Japan have all shown form in buying shares after crashes and cutting interest rates to cheer up bloodied investors. But the circumstances and the manner of China’s intervention of the past ten days make it an outlier, worryingly so.

The trigger in China’s case is perplexing. Yes, the stockmarket is down a third over the past month, but that has simply taken it back to March levels; it is still up 80% over the last year. Growth, though slowing, has stabilised recently. Other asset markets are performing well. Property, long in the doldrums, is turning up. Money-market rates are low and steady, suggesting calm in the banking sector. The anticipated correction of over-valued stocks hardly seems cause for much anguish.

20150711_woc701.png


Yet China’s intervention has screamed of panic. Had the central bank stopped at cutting interest rates—justifiable support for the economy when inflation is so low—that would have been reasonable. Instead, there has been a spectacle of ever-more drastic actions to save the market. Regulators capped short selling. Pension funds pledged to buy more stocks. The government suspended initial public offerings, limiting the supply of shares to drive up the prices of those already listed. Brokers created a fund to buy shares, backed by central-bank cash. All the while, state media played cheerleader. Far from saving the market from drowning, the succession of life buoys only pushed it further under water. The CSI 300, an index of China’s biggest-listed companies, fell almost 10% over seven trading days after the rate cut. ChiNext, an index of high-growth companies that is often described as China's Nasdaq, fell by 25%.

Theories have flourished about why the government has waded in so heavily. The apparent desperation is, some believe, a sign that officials see a looming economic collapse, and are trying to staunch the wound before social upheaval ensues. That story is intriguing, but it is not the most likely.

Lost in all the drama about the stockmarket is that it still plays a surprisingly small role in China. The free-float value of Chinese markets—the amount available for trading—is just about a third of GDP, compared with more than 100% in developed economies. Less than 15% of household financial assets are invested in the stockmarket: which is why soaring shares did little to boost consumption and crashing prices will do little to hurt it. Many stocks were bought on debt, and the unwinding of these loans helps explain why the government has been unable to stop the rout. But this financing is not a systemic risk; it is just about 1.5% of total assets in the banking system.

If economic stability is not in peril, why then the panic? The most compelling explanation is politics. The government has staked much credibility and prestige on the stockmarket. When the going was still good, the official press was chock-a-block with articles about how the rally reflected the economic reforms that Xi Jinping, China’s top leader, was set to push. Li Keqiang, the premier, said repeatedly that he wanted equity markets to provide a bigger share of corporate financing—comments, from punters' perspective, not unlike waving a red cape in front of a bull. The sudden end to the rally is the first major dent in the public standing of the Xi-Li team. The botched attempts to stabilise the market only make them look weaker, giving succour to their critics.

But the biggest concern about the panicked policy response is what it says about the government's agenda. The economic hopes invested in Messrs Xi and Li stemmed from their pledge in late 2013 to let market forces play a “decisive role” in allocating resources. The actions of the past ten days have made abundantly clear that it is still the other way around: the Chinese government wants a decisive role in markets.

The failure of share prices to do their bidding is, in that respect, welcome. It shows that the Communist Party, powerful though it may be, cannot indefinitely bend markets to its will. Chinese leaders should heed that lesson and get on with the challenges of liberalising their economy. A relapse towards statism will not just set China back. It also will not work.


The Economist's explanation, "The most compelling explanation is politics," makes sense to me.
 
I'll admit that my knowledge of the Chinese economy is limited to uninformed, but isn't it really built on a house of cards, and doomed to some form of collapse being long overdue.

A couple of former coworkers from China indicated that costs for the average citizen, not the new capitalist rich class was way beyond their means. The ghost cities of empty high rise apartments, the population shift from rural regions to the cities. It all seems to be converging towards a cliff.
 
The correction, if that's what it is, is spreading, according to this article whch is reproduced under the Fair Dealing provisions of the Copyright Act from the Financial Times:

http://www.ft.com/intl/cms/s/0/9382843e-2511-11e5-bd83-71cb60e8f08c.html#axzz3fEoIWhPH
Financial-times-logo.jpg

China ramps up efforts to halt stock market rout

Josh Noble in Hong Kong and Gabriel Wildau in Shanghai

July 8, 2015

China’s central bank stepped up state support for sinking stocks on Wednesday, as investors rushed to sell what they still could after a fresh wave of share suspensions that has halted trading in half the market.

The Shanghai Composite closed down 5.9 per cent after falling as much as 8 per cent at the open. The Shenzhen index lost 2.5 per cent, while the start-up ChiNext board managed to inch up 0.5 per cent.

The renewed selling followed another round of share suspensions overnight that have now halted trading in 1,476 stocks — or more than 50 per cent of all listed companies on China’s two main exchanges. The suspensions have frozen $2.6tn worth of equity, according to Bloomberg calculations.

The sell-off was equally pronounced in Hong Kong, where global investors typically trade Chinese stocks. The Hang Seng index suffered one of its biggest point drops on record, shedding 5.8 per cent to erase all its gains over the previous 12 months.

Hong Kong Exchanges & Clearing, the bourse operator, dropped 8.3 per cent, taking its loss over the past five days to almost 30 per cent and robbing it of its crown as the world’s most valuable exchanges operator. That now reverts to CME Group.

The Hang Seng China Enterprises index of large Chinese companies listed in Hong Kong tumbled 8.8 per cent, and is now down a tenth since the start of the year.

As the stock rout continued, Beijing responded with further measures to steady the market. The People’s Bank of China said it was helping state-owned China Securities Finance Corporation access liquidity to help the fund “hold the line against the outbreak of systemic or regional financial risk”.

This is the clearest statement yet about what CSF is doing — buying shares directly using PBoC money, a big departure from its traditional role of lending to brokerages to support margin lending.

The CSF is also providing Rmb260bn ($41.8bn) of credit to brokerages in order to help them buy shares, according to the China Securities Regulatory Commission.

In a separate statement the CSRC added that the CSF would continue to buy blue-chips, but would also step up purchases of shares in smaller companies to “relieve the problem of strained liquidity”.

In its statement ahead of Wednesday’s open, the CSRC had noted: “There is a mood of panic in the market and a large increase in the irrational dumping of shares, causing a strain of liquidity.”

In a further effort to halt the rout, China’s state-sector administrator instructed government-owned companies not to sell shares, while the insurance regulator said it had cleared “qualified insurers” to increase their asset allocation to equities.

As stocks fell on Wednesday, large-caps broke their recent run of gains, with PetroChina — the country’s biggest company — dropping 8.6 per cent. ICBC, the world’s largest bank by assets, shed 4.7 per cent, while Ping An Insurance sank by the daily limit of 10 per cent.

Since hitting a seven-year high in mid-June Chinese stocks have been in free fall, with both major indices dropping more than a third to wipe $3tn off their value.

The government has already taken a number of steps to prevent further selling by Chinese retail investors — who dominate the market — such as suspending initial public offerings, and using state funds to buy shares directly. It has also cut trading fees in a bid to improve market liquidity.

In spite of the panic selling, a handful of global investment banks sounded a bullish note on the Chinese market.

HSBC upgraded its rating on China to “neutral” from “underweight” and raised its price target for the Shanghai Composite to 4,000 points (it is currently trading around 3,500), while Goldman Sachs said it expected the CSI 300 index to rise more than a quarter from its current level over the next year.


Here, also from the FT, is a Q&A piece for those of us who are replexed:

Question & Answer: China’s share trading suspensions
Why are Chinese companies choosing this strategy and will the authorities allow it to continue?

Tom Mitchell in Beijing and Gabriel Wildau in Shanghai

July 8, 2015

If corporate management, like diplomacy, can be said to be war by other means, China’s two most famous military strategists would probably approve of the moves by more than 1,400 Shanghai and Shenzhen-listed companies to suspend trading in their shares. Both Sun Tzu, author of the Art of War, and the father of China’s Communist revolution, Mao Zedong, knew the folly of an army venturing on to the battlefield when conditions were not its favour.

How extensive are the suspensions?

On Wednesday morning, hundreds more companies said they would suspend trading, bringing the total to 1,476, more than half of China’s 2,808 listed companies.

Most are listed on the Shenzhen stock exchange’s ChiNext board, the preferred destination for technology companies and China’s answer to the Nasdaq. The ChiNext has risen further, and fallen faster, than any of its domestic peers.

This was reflected in Tuesday’s 5.3 per cent fall in the broader Shenzhen Composite index, compared to the Shanghai Composite index’s 1.3 per cent decline.

Why are they doing this?

Most of the companies have cited “significant matters”, a phrase that would normally hint at an impending merger, acquisition or restructuring.

It is unlikely, however, that China is on the cusp of an M&A boom, especially in the context of a market that has shed more than 30 per cent of its value in about three weeks.

Some analysts believe the suspensions are instead related to one of the scariest “known unknowns” surrounding the market meltdown — just how many controlling shareholders have pledged their shares as collateral for bank loans.

Those who have pledged shares could be required to liquidate them when their value falls a certain amount, potentially triggering another major sell-off.

It is one of the biggest potential “transmission mechanisms” between China’s stock markets and the wider economy.

How long can these suspensions last and why aren’t all companies seeking shelter from the storm?

The Shanghai and Shenzhen stock exchanges have complicated rules specifying different suspension periods, for reasons ranging from major asset restructurings to whether a company is concerned that price-sensitive information may leak. While the rules require various levels of disclosure when a company seeks to extend its suspension, they can effectively halt trading for weeks or months at a time.

The more companies that suspend their shares, the worse China’s stock markets look. Most companies that have done so are not particularly well known, and state-controlled firms are now buying blue-chip stocks in an effort to support the Shanghai and Shenzhen Composite indices. If blue-chips were to stop trading, the government might as well just close the markets outright.

Can avoiding a market meltdown and wider banking crisis really be as simple as that?

Hardly. The latest suspension applications may be rejected by the Shanghai and Shenzhen stock exchanges. They and their regulator, the China Securities Regulatory Commission (CSRC), know that this looks terrible and represents a huge reputational risk.

Moreover, the Chinese government has long prided itself for acting “responsibly” in times of crisis. Most notably, it did not devalue the renminbi when its neighbours’ currencies plummeted during the Asian financial crisis of 1997-98, even though this rendered China-based exporters less competitive. Ten years later, Beijing took extraordinary measures to boost domestic demand during the global financial crisis, providing a crucial fillip for the global economy.

Mass suspensions, however, are essentially a more discrete form of market closure — one of the worst policy responses a government can take. The Indonesian government infamously closed stock markets for a few days during the depths of the global financial crisis.

So what does this mean for minority shareholders, especially the small “mom and pop” retail community, and foreign investors?

Many retail investors may, in fact, welcome the suspensions, which at least postpone any reckoning they may have to face. Even when a company’s trading suspension is lifted, “circuit breakers” restrict any one stock’s daily fall to 10 per cent, so it would take a while for them to catch up with the broader market collapse.

For foreign investors, the suspensions raise significant concerns. Over recent years, the CSRC has rapidly expanded its quotas for Qualified Foreign Institutional Investors as part of Beijing’s broader strategic aim of internationalising the renminbi. Institutional investors, however, take a dim view of such gamesmanship.

Last month, the MSCI decided to delay inclusion of Shanghai and Shenzhen-traded shares in its global emerging market index — probably until May 2017 — meaning that China Inc’s representation remains restricted to Hong Kong-listed H shares and red chips, the mainland China companies incorporated outside mainland China and listed in Hong Kong.

The current controversy over China’s mass trading suspensions would appear to validate that decision.

Additional reporting by Wan Li
 
The Chinese market continues to plunge. Losses of three trillion dollars is pretty astounding. Greece may suddenly become a sideshow:

http://www.nbcnews.com/news/china/china-markets-crisis-government-efforts-fail-halt-plunge-n388496?cid=sm_tw&hootPostID=9df940a1c6f0a8e2405100f8640c0a72

China Markets Crisis: Government Efforts Fail to Halt Tumble
by Ed Flanagan

BEIJING — Unprecedented steps aimed at propping up Chinese investor confidence failed to stop the country's main stock markets from tumbling yet again on Wednesday.

Within the first hour of trading some 1,400 companies — representing more than 40 percent of China's stock market cap — had suspended trading. Some were frozen before the opening bell after petitioning the government while others quickly met the 10-percent daily limit on losses.

Since the crisis began over three weeks ago, China's Shanghai and Shenzhen Composites have lost more than 30 percent and 40 percent of their value respectively, adding up to $3 trillion dollars in equity lost.

"There is a mood of panic in the market and a large increase in irrational dumping of shares, causing a strain of liquidity in the stock market," China's Securities Regulatory Commission said in a statement.

Related: Chinese Stunned as $2.8 Trillion Is Wiped From Markets

The pain of these devastating losses is not primarily being felt by professional money managers. Instead, retail traders — regular citizens and pensioners investing their savings and accounting for nearly 85 percent of traders — are bearing the brunt.

For one investor, panic gave way to confusion.

"One of the stocks I hold has been suspended, but because I can't sell yet I am not sure if I will make money or lose more," said Wang, who like other investors NBC News spoke to asked to be referred to by his surname.

The Beijing office cleaner said he just hoped the government would take further steps to calm markets — a common refrain among investors.

Chinese government agencies published a series of measures throughout the day, including urging major shareholders and top executives of listed companies to buy their own shares, and allowing insurers to buy more blue-chip stocks.

But such steps did not prevent the bloodbath. The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 6.8 percent, to 3,663.04. The Shanghai Composite Index lost 5.9 percent, to 3,507.19 points.

Analysts say this has been the biggest sell-off since 2007, and equivalent to 10 times the annual economic output of Greece.

Around 85 percent of China's investors have account balances of less than $16,000, according to Oliver Rui, the director of CEIBS-World Bank China Centre for Inclusive Finance, a business school. Only 6 percent of traders have college degrees.

How these investors became dominant traders in the market can be largely attributed to government policy. And in light of a cooling housing market and low interest rates, many Chinese in recent years have been searching for places to invest their savings.

Yuan is one of millions who put savings in the markets when they were booming. And like so many others, the 50-year-old from Hebei province called on the government to stop the pain.

"This is not the bottom right now," he said. "The government should have done something earlier when the index was higher — they are moving too slow."

and



Why China's stock market meltdown should be a cause for global worry
If the market fall accelerates the economic slowdown, other countries that have not been affected by China's market fall will be hit soon
Shishir Asthana  |  Mumbai
July 8, 2015 Last Updated at 10:30 IST

Related News
Devangshu Datta: Attention focused on Greece and China
33 stocks outperform markets ahead of MSCI inclusion
BSE announces change in banking index calculation
Greek referendum hasn't created a panic-like situation: Samir Arora
Nikkei takes over Asia Markit PMI series sponsorship from HSBC

While all attention is fixed on Greece and how world markets will be affected post the ‘No’ vote to solve the $382 billion debt problem, a bigger loss in one of the world's biggest financial markets escaped attention untill this week.

China’s stock market has lost over $3 trillion in value in less than a month without creating a domino effect across the world. Chinese markets continued their plunge this week, wiping close to 37 percent off the market’s valuation from June 12 peak. The intensity of the loss can be judged from the fact that it is nearly twice the market capitalisation of all stocks traded in India and more than the Spanish, Russian, Italian, Swedish and Dutch stock markets combined.

Normally when one market falls, especially of the size of China, other markets follow suit. China in fact is the second biggest market in terms of market capitalisation but despite a 37 per cent fall in its value,  Dow Jones, representing the largest market, is down by less than only one per cent in a month. World markets seem to be dancing to the tune of Greece markets more than the events in China. China’s fall is not even being replicated in other emerging markets.

ALSO READ: China plans to use Internet to juice up its economy

So why is it that China is falling in isolation?

The answer is absence of foreign institutional investors (FIIs) in the country. FIIs exposure to China is through stocks listed in Hong Kong in what is known as H shares. China prevented entry of foreign investors in its country. Reuters reports that a landmark scheme linking Hong Kong and Shanghai stock markets launched last November has failed to get much foreign participation, with concerns about stock ownership and how trades are settled dogging investors. Even MSCI (Morgan Stanley Capital International) index decided to delay inclusion of China’s A share in its list of investable shares.

According to Thomson Reuters data, foreign investors account for less than 1 percent of the mainland equity market as compared to nearly 25 per cent for India. Thanks to this limited exposure by foreign players directly in China, a contagion to other markets has been prevented.

But this is likely to be short lived. Investors who have lost money in the recent market crash are retail Chinese investors. Over 85 per cent of trading volumes in China is from its retail investors.

ALSO READ: China brokers to invest $19 bn to curb market plunge

A crash in the property markets last year forced many retail investors to divert their funds to equity markets. Government incentives and opening up of relaxed margin funding helped fuel the sharp rally in Chinese equity markets. Government used all the machinery in its hand including state media to urge public to invest in stocks.

This has resulted in more stock market investors in China than there are Communist Party members. The Chinese equity market now has more than 90 million individual investors, according to China Securities Depository and Clearing Co, compared to the Communist Party's 87.8 million reported members at the end of last year.

Most of these investors have utilised margin funding facilities and are heavily leveraged. Goldman Sachs pointed out in a report that the outstanding margin financing, at 2.2 trillion yuan ($355 billion) earlier this week (more than five times of what it was a year ago), was the equivalent of 12 per cent of the value of all freely traded shares on the market, or 3.5 per cent of China’s GDP. Both “are easily the highest in the history of global equity markets,” its analysts noted. But with Chinese shadow banks and peer-to-peer lenders also offering cash to investors, the amount of hidden leverage in the market is estimated to be as much as 50 per cent higher.

Numerous steps taken by the government failed to prevent the slide. Margin funding norms were relaxed, new issue launches were cancelled to prevent investors from selling shares in the market to invest in these issues, exchange fees were lowered, pension funds were allowed to invest nearly 30 per cent of their corpus in equities, interest rates were cut and investors were allowed to even pledge their apartments to invest in the market. But none of these have worked.

In the most recent move,  China has infused liquidity in its market and has asked Pension Fund manager not to sell a single share from its portfolio. Late Sunday night, China Securities Regulatory Commission said that it will uphold market stability by providing liquidity to China Securities Finance, a state unit that makes margin finance available to brokers. As a result, Chinese market opened with gap of 7.2 per cent higher but have conceded all the gains and presently trade only 0.7 per cent higher.

Even the state media and opinion makers were roped in to urge investors to hold onto shares for the glory of the Chinese nation but to no avail.

The Economist points out that the longer term consequences of the correction are more worrying than the short term one. Economic activity normally slows down after the market falls sharply and fails to recover.

China is already slowing down and the last thing it needs is a stock market crash which will impact consumption. If the market fall accelerates the economic slowdown, other countries that have not been affected by China’s market fall will be hit. After all China is the largest consumer of a number of goods and commodities in the world.
 
The fate of the Red Dynasty may hinge on the events in the Chinese stock market and economy in the coming days. Their "Mandate from Heaven" is explicitly tied to economic growth and stabilty, and if they don't deliver, the consequences could be severe:

http://www.the-american-interest.com/2015/07/08/chinas-three-bubbles/

China’s Three Bubbles Walter Russell Mead

The sell-off in Chinese equities accelerated Wednesday as new government efforts to arrest falling stock prices proved ineffectual. Major indices closed down six to seven percent, with shares in 72 percent of companies now unable to be traded. Beijing’s efforts to force the market upward by pumping money into the stock of large state-owned companies are failing to reassure panicked investors. As the market seizes up, the panic is spreading from margin traders to mutual fund holders. The WSJ reports:

Contagion from the plunge in Chinese stocks spread Wednesday in a sign investors within China and overseas are losing confidence in Beijing’s ability to stem the slide in the country’s equity markets and manage its economic reforms.

Shares listed on the country’s main Shanghai market dropped 5.9%, deepening a slump that has seen the market fall by nearly a third since mid-June.

The gloom is no longer confined to stocks. The yield on China’s benchmark government bonds rose sharply, while investors unloaded billions worth of dollar-denominated debt issued by Chinese companies. China’s currency, the yuan, fell to a four-month low in offshore markets, while a global selloff in commodities continued, with oil down in early Asian trading and metals such as copper trading close to six-year lows.

We don’t know, and no one knows, what the Chinese market will do tomorrow or next week. This could be the Big One, the correction that deflates the whole huge China bubble of overbuilt investment that has been accumulating for years and will, after lots of pain, put the Chinese economy on an ultimately sounder basis. Or it could be just another correction on the way up to a ceiling that hasn’t yet been reached. So this may or may not be the beginning of the major economic crisis that China is bound to experience at some point in the future.

Short of that, however, it is already a political crisis—the biggest challenge President Xi Jinping has faced since coming to power. The Chinese government plays a huge role in systematically managing the country’s economy, and it has staked its legitimacy on its ability to make the economy grow. Moreover, it has taken a very clear position on the stock market crash: this shouldn’t be happening and the government will make it stop. Therefore, the government’s failure to stabilize stock prices is going to be seen as a failure of official policy. Criticism of the stock market will turn into criticism of the political leadership, and it must be said that the political leadership hasn’t demonstrated great skill in the early days of the crisis. Premier Li has allowed himself to become identified with the efforts to stabilize the stock market. If those measures succeed, he looks like a hero. But after the latest rout, a lot of people in China don’t think the policies are working.

This is going to be a difficult one to ride out. China’s government claims to be able to deliver the benefits of growth along with the blessings of stability. To get growth, China has had to allow more and more market-based economic activity to take place. But in the interests of stability, and to assure faster gains than an unmanaged free market might deliver, Chinese authorities have also interfered systemically in the economy. The banking system, particular, is largely politically driven. The allocation of capital is not very efficient, and many state-owned companies have long been on life support, with banks ordered to give them the credit they need. Moreover, local governments have systematically distorted real estate markets and become dependent for their financial health on a real estate and infrastructure bubble that must be seen to be believed.

So China’s extraordinary years of lending and growth have surely created an economic bubble, but they have created two other bubbles as well. First, a political bubble based in the belief that China’s government techniques can defy the laws of economic gravity and create long-term, stable, above-market rates of growth in the developing world. Second, a geopolitical bubble based on the belief that China’s stellar economic record of the last few decades will continue indefinitely into the future with immense consequences for the international order. That is, the country’s success has encouraged authoritarian regimes and technocrats all over the world to believe that markets can be managed long term, and that market forces can be indefinitely held at bay.

China’s hothouse growth has been the wonder of the world. But when the Big One comes, all three of the country’s bubbles are likely to burst. For China’s authorities, their stake in their current battle with the stock market are much greater than they might appear to outsiders. This isn’t just a crisis of China’s financial markets. It is a crisis of China’s political system and international strategy.
 
The Globe and Mail reports that, "China’s main stock market jumped 6.4 per cent – almost as much as it had fallen the previous day – after its securities regulator ordered shareholders with stakes of more than 5 per cent not to sell shares for the next six months ... The advance brought relief throughout Asia. A 1.8 per cent climb by MSCI’s broadest index of Asia-Pacific shares outside Japan was its biggest since April. The main emerging markets index scored its best gain since January ... Europe’s mining and metals stocks, which are closely linked to China’s fortunes, led the pan-European FTSEurofirst 300 index up 0.9 per cent ..."

The Financial Times suggests that there may be more to come, because, "China’s stock market rout began in mid-June following a clampdown on margin finance — the use of borrowed money to buy shares. That has prompted a rapid unwind of leveraged trades, a process many believe is still far from reaching its end ... “The deleveraging process is likely to continue in the near term and therefore the [domestic] share market will probably remain volatile,” said analysts at UBS. "

We'll have to wait and see if this is just a dead cat bounce or if the Chinese markets have corrected themselves for overheating in the past year.
 
The government bans stock holders from selling for six months ? So much for free markets commie style.
 
tomahawk6 said:
The government bans stock holders from selling for six months ? So much for free markets commie style.


The ban only applies to those who hold more than 5% of a company ~ we, and you in the USA, also have rules governing trades by major shareholders.

There is a useful primer on Chinese stocks in an article in The Economist. here are a couple of extracts:

    "The first mistake—often made by China pessimists—is to think that the market crash presages an economic collapse. That is most unlikely. True, the stockmarket is down by a third in a few weeks, but it has fallen back only to March levels;
    it is still up by 75% in a year.

    Lost in the drama is the fact that the stockmarket still plays a small role in China. The free-float value of Chinese markets—the amount available for trading—is just about a third of GDP, compared with more than 100% in developed economies.
    Less than 15% of household financial assets are invested in the stockmarket, which is why soaring shares did little to boost consumption and their crash should do little to hurt it. Many stocks were bought with debt, and the unwinding of these loans
    helps explain why the government has been unable to stop the rout. But such financing is not a systemic risk; the loans are about 1.5% of total assets in the banking system. The economy is solid. Growth, though slowing, has stabilised. The
    property market, long becalmed, is picking up. Money-market rates are low and steady, suggesting banks are stable."

                    AND

    "If economic stability is not in peril, the best explanation for the interventions is politics. When the stockmarket was soaring, the press cheered the bull run as an endorsement of the economic reforms of the Xi-Li team. Now that it is falling,
    regulators want to shore up the leadership’s reputation.

    It is not just the motive that is dodgy; the nature of the intervention is also unwise. Cutting interest rates as support for the economy when inflation is so low is fair enough. But regulators capped short-selling; pension funds pledged to buy
    more stocks; the government suspended initial public offerings; and brokers created a fund to buy shares, backed by central-bank cash (see article).

    Just as the Communist Party distrusts market forces, so it misunderstands them. Botched attempts to save stocks suggest it is losing control, while a successful rescue would have made buying shares a one-way bet—inflating the bubble
    still further. One of the persistent illusions about China’s governance is that, whatever its other shortcomings, eminently capable technocrats are in control. Their haplessness in the face of the market turmoil points to a more disconcerting reality.

    China is not the first country to prop up a falling stockmarket. Governments and central banks in America, Europe and Japan have form in buying shares after crashes and cutting interest rates to cheer up bloodied investors. What makes China
    stand out is that it panicked when a correction of clearly overvalued shares had been expected. Rather than calming investors, its barrage of measures screamed of desperation."
 
Here is an interesting infographic that illustrates the "rise of China" based on Internet usage. The x axis is from 1990 to 2011 (22 years). It was the often reviled Jiang Zemin who opened China to the Internet and, therefore, gave the Chinese some, limited, access to the world.

ba0d2f71-cbf1-47ca-a1f2-e4fb72fe2a2c-original.jpeg

 
Xi Jinping has some harsh words for the Chinese military according to this article which is reproduced under the Fair Dealing provisions of the Copyright from the Financial Times:

http://www.ft.com/intl/cms/s/0/5e531480-2eb8-11e5-91ac-a5e17d9b4cff.html#axzz3gM84esQu
Financial-times-logo.jpg

Xi warns China military amid anti-corruption purge

Charles Clover in Beijing

July 20, 2015

China’s President Xi Jinping moved to address lingering resentments in the country’s military created by the anti-corruption purge that has felled more than 200 senior officers, reminding military leaders they must “resolutely” obey the Communist party.

Mr Xi delivered the sternly worded message to the home unit of Xu Caihou, formerly one of China’s highest ranking generals who was arrested last year in a massive bribery scandal.

Mr Xu “caused comprehensive and deep harm to the construction of the army”, Mr Xi told the officers of the 16th Army Group based in the north-west town Changchun at the weekend.

Mr Xu had been the unit’s chief political officer and commissar from 1985-1992, according to his official biography. The 16th Army Group was subjected to a significant top level reshuffle in late 2014, following Mr Xu’s arrest, according to Chinese media reports.

“We must thoroughly cleanse the influence of Xu Caihou, ideologically, politically, and also in terms of organisation and work style,” Mr Xi said.

He also stressed that disobedience to the ruling party would not be tolerated — remarks highlighting that China’s civilian leadership may not be taking the military’s loyalty entirely for granted in the wake of the most severe purge of armed forces since the 1980s.

“We must always firmly adhere to the fundamental principle and system whereby the party maintains absolute leadership over the army under any circumstances,” Mr Xi told senior officers.

“(The army) must resolutely conform to orders from the party Central Committee and the Central Military Commission,” he said.

Mr Xu was ultimately not prosecuted for health reasons and died in March of cancer, but his arrest exposed a massive bribes-for-promotion ring that has enveloped much of the command structure of the People’s Liberation Army.

Investigators last year found more than a tonne of cash and precious gems in Mr Xu’s house, much of which had apparently been given in exchange for promotions by hundreds of senior officers.

On July 6 the People’s Daily, the Communist party mouthpiece, said that since 2013 more than 200 officers of lieutenant-colonel rank and above had been punished for corruption-related offences.

Insiders say that one of the motivations for the graft probes was to reassert party control, after Mr Xi saw the disrespect with which the PLA treated his predecessor, Hu Jintao.

The daylight between civilian and military leaders under Mr Hu was alluded to in a 2011 speech by Robert Gates, then-US secretary of defence. “Over the past several years we have seen some signs of  . . . a disconnect between the military and the civilian leadership,” he said.

Analysts said that while the anti-corruption campaign may have exacerbated tensions with the military, ultimately the party’s authority over the PLA remains unquestioned.

“While the PLA has a privileged position, it is first and foremost a party army,” said Euan Graham, the director of the international security programme at the Lowy Institute in Sydney.

Additional reporting by Owen Guo


Interesting, as Euan Graham says, the PLA is, above all, an organ of the party (the dynasty) but it was not, always, a tool of the party leader. It appears to me that Xi Jinping is trying to consolidate the power of his own supporters by weakening other power centres, like the PLA and the security services.
 
Here, reproduced under the Fair Dealing provisions of the Copyright Act from Foreign Affairs, is an interesting perspective on the recent Iran nuclear agreement, looked at from China's point of view:

https://www.foreignaffairs.com/articles/china/2015-07-21/sino-iranian-tango
sitetheme_logo.gif

The Sino-Iranian Tango
Why the Nuclear Deal is Good for China

By Michael Singh

July 21, 2015

The recent nuclear agreement between Iran and the P5+1 countries (China, France, Germany, Russia, the United Kingdom, and the United States) will have major implications for security in the Middle East. But the impact of the deal will be much wider.

Just how wide was demonstrated by Russian Foreign Minister Sergei Lavrov, who, even before the official press conference announcing that the agreement had been concluded, declared that the deal obviated any need for NATO missile defenses in Europe, which have long been a point of contention between the United States and Russia. The deal will also likely lead to billions of dollars of investment by India in Iran’s southern port of Chabahar, long-awaited progress on a gas pipeline from Iran to Pakistan, and perhaps even the provision of Iranian gas to a Europe eager to reduce its energy dependence on Russia.

The biggest impact of all, however, may be on China. Iran and China have long-standing ties that are free of the historical baggage that complicates Tehran’s relations with Russia, the United Kingdom, and the United States. Modern Sino-Iranian relations predate U.S. President Richard Nixon’s opening to China, and China has been an indispensable security partner to Iran, including by supplying it with arms and, as Orde Kittrie noted in another article for Foreign Affairs, by providing it with key nuclear components.
Thanks to the two countries’ historically close relations and their mutual suspicion of the United States, many well-regarded China scholars expected China to play a spoiler role in the talks. But by all accounts, Chinese involvement was constructive. Beijing’s approach may have been motivated by a desire to shape a diplomatic outcome to head off either of two undesirable outcomes: a U.S.-Iranian war that could endanger China’s oil imports from the Persian Gulf or a U.S.-Iranian rapprochement that could leave that waterway ringed by American partners. Like Iran, China also likely sought the reversal of American sanctions, which in recent years threatened not only Chinese nuclear and arms exporters but more strategically important institutions such as Chinese banks and oil giants.

Throughout the nuclear negotiations, China was careful to maintain close ties with Iran from within the P5+1, shielding the country from the effects of sanctions resolutions even as it voted in favor of them at the United Nations. Chinese-Iranian trade increased from about $3 billion in 2001 to over $50 billion in 2014 (the precise number is difficult to determine), and Chinese oil imports from Iran rose in 2014 and 2015 to their highest levels ever, after temporarily declining in 2012–13.

Sino-Iranian security ties also continued to expand during the period of negotiations, and they went well beyond nuclear and arms exports. Chinese fighter jets reportedly refueled in Iran in 2010, and Chinese warships paid a visit to the Iranian port of Bandar Abbas in 2014—both firsts. Additionally, China at least indirectly supported Iran’s regional agenda by vetoing multiple UN Security Council resolutions on Syria.

The recently concluded nuclear deal will allow the already strong Chinese-Iranian relationship to expand unfettered. U.S., European, and UN sanctions related to Iran’s nuclear activities—including the extraterritorial sanctions that, in effect, targeted Chinese entities—will be lifted or suspended, controlled nuclear exports will be permitted, and even restrictions on the provision of arms and missile technology to Iran will be terminated in no more than five and eight years, respectively. And Iran will be actively seeking international partners to help it translate the deal into greater economic and diplomatic clout in its neighborhood and beyond.

For Chinese President Xi Jinping, the Iran deal could not have come at a better time. His “One Belt, One Road” initiative envisionsa chain of energy, infrastructure, and maritime links from East Asia extending to Europe through the Middle East and Central Asia. Iran’s location at the crossroads between these regions makes its participation in the initiative important for Beijing.

For its part, Tehran, unlike Arab states that have been more skeptical of the Chinese initiative, has expressed enthusiasm about the “One Belt, One Road” plan. The Barack Obama administration has been at pains to point out that Iran’s domestic investment needs stand at $500 billion, a sum far greater than the $100 billion to $150 billion in unfrozen assets Tehran is likely to receive once the nuclear deal is implemented. Left unsaid is where the rest of the money will come from. Beijing, which recently pledged to invest $46 billion in an “economic corridor” in Pakistan and tens of billions of dollars to capitalize the new Asian Infrastructure Investment Bank, will likely be happy to chip in. An Iranian deputy minister claimed last year that China had already pledged to double its infrastructure investment in Iran to $52 billion.

A good deal of that future investment by China may well focus on Iran’s energy sector. Prior to the imposition of oil export restrictions on Iran, Tehran was China’s third-largest supplier of crude; as of 2014, it came in sixth. Even with sanctions lifted, Beijing may hesitate to increase the proportion of its oil imports that comes from Iran out of a concern about becoming too dependent on any single source. Yet China’s upstream investment in the Iranian energy sector may increase nevertheless, in large part to bolster Chinese energy security. Iran is unlikely to be swayed by any future Western political pressure to curtail oil exports to China, and Iran is the only country whose location would allow overland Chinese pipelines to reach the energy-rich Persian Gulf and thus reduce Beijing’s vulnerability to the disruption of maritime chokepoints such as the Straits of Hormuz and Malacca.

As a recently released military white paper makes clear, China is seeking to expand its forces’ ability to “effectively secure China’s overseas interests.” This has manifested in Chinese warships’ participation in counterpiracy missions in the region, the People’s Liberation Army Navy’s evacuation of thousands of Chinese nationals from Libya in 2011—the first operation of its kind by China—and Beijing’s reported plan to establish a naval facility in Djibouti. As Beijing seeks to expand its power and influence, Iran is a logical partner. It is the only large, powerful state in the region not already allied with the United States, and it sits astride land and sea routes of vital importance to Beijing. Little wonder, therefore, that in October 2014, the Chinese defense minister publicly expressed Beijing’s desire to expand military ties with Iran (a sentiment Iran has reciprocated by inviting China to expand its naval presence in Iran), and that China’s top counterterrorism official recently visited Iran to seek expanded cooperation against extremists.

The growth in Sino-Iranian economic and security ties could prove challenging for the United States. China and Iran both appear committed to chipping away at the existing U.S.-led international order. China has established regional security and economic institutions that compete with those dominated by the United States and its allies, and Iran has vocally challenged the authority of the UN Security Council and U.S. hegemony in the Middle East. Furthermore, both enjoy alliances of convenience with Russia, which similarly competes with the United States.
Increased Sino-Iranian cooperation would not be a mere diplomatic nuisance, however. As sanctions on Iran lifted, China has the capacity—through military assistance, economic investment, and the transfer of technology—to facilitate Iran’s rise as a regional power. Given Iran’s record of working through proxies, Chinese assistance could also indirectly strengthen nonstate actors supported by Iran. And Iran can offer China a strategically important foothold in the Middle East, should it choose to challenge U.S. influence there.

But a deeper alliance with Iran could also pose problems for China. Iran is notoriously difficult to work with, even for countries with which it would seem to share interests in common. For example, in April 2014, Iran canceled a $2.5 billion contract with the China National Petroleum Corporation, even as Iranian diplomats were urging the expansion of Sino-Iranian economic ties. Such difficulties may grow as sanctions are lifted and Iran’s alternatives to Chinese firms expand. Another obstacle to Sino-Iranian ties will be Iran’s support for terrorist groups such as Hamas, Palestinian Islamic Jihad, and the Taliban, which Beijing worries could pose a threat to its own interests.

Furthermore, increasing ties with Iran could frustrate China’s efforts to expand its economic partnerships with other regional states, especially Israel and the Gulf Cooperation Council countries, which see Iran as a chief rival. Iran is an important supplier of oil for China, but Saudi Arabia remains its top source of crude imports. As these states and Iran contend for regional influence, China could be increasingly pressed to choose sides.

The U.S. response to deepening Sino-Iranian ties will likely lean heavily on coercive diplomacy—persuading Beijing of the downsides of facilitating Iranian regional behavior, while imposing costs on any Chinese entities that contribute to prohibited Iranian activities such as the provision of arms to proxies. U.S. allies in the region—especially the countries China wants to cultivate as economic partners as part of its “One Belt, One Road” plan—can help influence Beijing’s approach. The context for such actions is also important; the stronger the U.S. alliance system and security architecture in the region, the less likely Iran and China may be to challenge it. And the greater the extent to which China can be persuaded to avoid adopting a zero-sum mindset and instead see the U.S. order as a benefit to its interests, the better.

But what the United States should not do, as it weighs the costs and benefits of the nuclear agreement with Iran, is neglect the accord’s wider implications, which stretch well beyond the battlefields of the Middle East.


Wheels within wheels, within wheels ...

 
More about the South China Seas and the islands and islets (and just a few rocks) and disputes regarding them all:

7fe8cb9f-470e-4f86-92d2-288425e7d193-original.jpeg

Source: https://www.pinterest.com/source/amti.csis.org/
Please note the two different words Proven and Probable
 
Here, reproduced under the Fair Dealing provisions of the Copyright Act from The Economist, is an interesting analysis of Xi Jinping's pivot towards Confucianism:

http://www.economist.com/news/china/21659753-communist-party-turns-ancient-philosophy-support-confucius-says-xi-does
the-economist-logo.gif

Confucius says, Xi does
The Communist Party turns to ancient philosophy for support

Jul 25th 2015 | QUFU | From the print edition

TWO emerging cults are on display in Qufu, a city in eastern China where Confucius was born. One surrounds the ancient sage himself. At a temple in his honour, visitors take turns to bow and prostrate themselves before a large statue of Confucius seated on a throne. For each obeisance, a master of ceremonies chants a wish, such as for “success in exams” or “peace of the country”. On the other side of the city the tomb of Confucius is the scene of similar adoration—flowers adorn it as if he were a loved one recently lost.

The other cult in Qufu surrounds the country’s president, Xi Jinping. People still recall with excitement the trip he made to the city in 2013. It was the first by a Communist Party chief in more than two decades; in fact, though Mr Xi has visited Qufu he has not, since becoming China’s leader, paid respects at the birthplace of Mao Zedong at Shaoshan in Hunan province. Today plates decorated with Mr Xi’s image are for sale in Qufu’s trinket shops. His beaming face is on display on a large billboard outside the Confucius Research Institute, together with a quotation from the modern sage: “In the spread of Confucianism around the world, China must fully protect its right to speak up,” it begins. 

Since he came to power in 2012, Mr Xi has sought to elevate Confucius—whom Mao vilified—as the grand progenitor of Chinese culture. He did not go so far as to pay homage at the Confucius temple in Qufu, where Mao’s Red Guard mobs once wrought havoc (one of their slogans, “Revolution is not a crime”, still survives daubed on a stone tablet). Neither did his few published remarks include explicit praise for Confucian philosophy, which still raises hackles among party hacks brought up to regard it as the underpinning of “feudal” rule in premodern China.

To emperors, who were regular visitors to Qufu, Confucianism was practically a state religion. “Uncle Xi”, for all the mini-cult surrounding him, does not seem keen to be viewed as a latter-day emperor. But like leaders of old, he evidently sees Confucianism as a powerful ideological tool, with its stress on order, hierarchy, and duty to ruler and to family. Unlike the party’s imported, indigestible Marxist dogma, Confucianism has the advantage of being home-grown. It appeals to a yearning for ancient values among those unsettled by China’s blistering pace of change.

Though the party has quietly been rehabilitating Confucius for some time, under Mr Xi the pace has quickened. In February 2014 he convened a “collective study” session of the ruling Politburo at which he said that traditional culture should act as a “wellspring” nourishing the party’s values. Official accounts of the session made no mention of Confucius, but party literature made it clear that the values Mr Xi spoke of—such as benevolence, honesty and righteousness—were those espoused by the philosopher. In September Mr Xi became the first party chief to attend a birthday party for Confucius (who turned 2,565). China, he told assembled scholars from around the world, had always been peace-loving—a trait, he said, that had “very deep origins in Confucian thinking”. In May state media reported that the link between Marxism and Confucianism, which some might consider rather tenuous, was the “hottest topic” in the study of humanities in 2014.

Add plenty of sage

Under Mr Xi the party has tweaked its ideological mantras to sound more Confucian. At the party congress in 2012 that marked Mr Xi’s assumption of power, slogans about “core socialist values” were distilled into 12 words, each formed by two Chinese characters and plastered all over Beijing and other cities. The ideas are a hotch-potch. Some are strikingly Western, such as democracy, freedom and equality. There is a nod to socialism with “dedication to work”. Others, such as harmony and sincerity, look more Confucian. Zhang Yiwu of Peking University notes a similarity with the “shared values” adopted by Singapore’s government in 1991. Authoritarian Singapore, where officials hold Confucianism in high regard, has been an inspiration to China, Mr Zhang says.

There is certainly a competitive streak in the party’s growing fondness for the sage. China is surrounded by countries that think of themselves as Confucian, including Japan, which China sees as a rival, as well as South Korea, Taiwan and Vietnam. When, a decade ago, China began setting up language schools abroad to enhance its soft power, it called them Confucius Institutes. That was partly an effort to gain control of the Confucian brand (and partly because “Mao Institutes” would somehow have lacked appeal). There are now 475 such institutes in 120 countries.

A few scholars would like Mr Xi to go much further, by setting up a new form of government based on Confucianism. Prominent in this camp is Jiang Qing, who runs a Confucian academy in the south-western city of Guiyang. In a co-written article published by the New York Times in 2012 Mr Jiang proposed that China set up a tricameral parliament. One of the chambers would be led by a descendant of Confucius. (There are plenty of them, including roughly a quarter of Qufu’s population. This correspondent’s taxi driver boasted that he was a 77th-generation descendant.) Another chamber would be made up of “exemplary persons” nominated by scholars steeped in Confucian classics.

Mr Xi, a staunch defender of the party’s monopoly on power, would never agree to Mr Jiang’s plan. Yet there is an open-ended tone to another slogan now draped across bridges in Beijing: “The people have faith, the nation has hope and the country has strength.” Faith in what, it does not say—but Confucianism, it can be guessed, would have the party’s blessing. The two cults are now entwined.


I have mentioned this before: Confucius offers a "complete system" for social organization, from the family up to and including the empire. What's more it is a system that is, very likely, more compatible with one-party rule than is Wester, liberal democracy.
 
While seaplane technology is actually old, the use of large sea planes hasn't been a factor in military operations since the Second World War, so this is interesting, especially in the increased flexibility it gives China in the South China Sea region (both in terms of rapid logistics and surveillance capabilities).

http://www.defensenews.com/story/defense/naval/naval-aviation/2015/03/28/china-seaplane-islands-scs-claims-spratley-reef/70542218/

Seaplane Could Advance Chinese SCS Claims
By Wendell Minnick 12:55 p.m. EDT March 28, 2015

TAIPEI — A new Chinese-built seaplane could help seal Beijing's control over its claims in the South China Sea (SCS), say military specialists on China.

The Jiaolong (Water Dragon) AG600, under construction by China Aviation Industry General Aircraft (CAIGA), will be China's largest operational seaplane. CAIGA did not respond to inquiries after the company's announcement on March 17 that it had completed the front fuselage assembly for the prototype.

According to brochures obtained at the 2014 Airshow China in Zhuhai, the aircraft is powered by four turboprop WJ-6 engines and has a range of 5,500 kilometers, which would provide substantial movement within the SCS. In the Spratly Islands, China is currently constructing artificial islands on Hughes Reef, Johnson South Reef and Gaven Reef.

Despite the lack of direct mainland access to Beijing's strategic claims in the SCS, the aircraft are seen as a boon to solidifying control of the area by China's military and maritime enforcement agencies for island hopping within the crowded clusters of the 750 reefs, islets, atolls and islands in the Spratly Islands archipelago.

"Amphibious planes like the AG600 would be perfect for resupplying the new artificial islands that the Chinese are building in the SCS," said Richard Bitzinger, coordinator of the Military Transformations Program at Singapore's S. Rajaratnam School of International Studies.

"At the same time, these islands would be excellent bases of operations for the AG600 to engage in maritime patrols of claimed territories."

The AG600 will also serve as political leverage, said Ching Chang, a research fellow at Taiwan's ROC Society for Strategic Studies.

"States need effective governance to support their territorial claim" and the AG600 will enhance China's capability in "law enforcement, fishery patrol, anti-poaching activity on coral reefs, pollution prevention, search and rescue, medical rescue transportation, meteorological and seismic survey, namely, all the government functions that may signify its substantial governance in the South China Sea."

This type of governance and control will serve China's argument that the islands are "inhabitable according to UNCLOS [United Nations Convention on the Law of the Sea] requirements, which support the PRC [People's Republic of China] to claim an EEZ [exclusive economic zone] in the South China Sea."

CAIGA brochures indicate the AG600 can fulfill four missions: search and rescue (SAR), fire fighting, transport (up to 50 passengers), and maritime surveillance. These aircraft might also serve China's military in the roles of signal intelligence and electronic intelligence, said Sam Bateman, adviser, Maritime Security Programme, S. Rajaratnam School of International Studies, Singapore.

However, Bateman does not see these aircraft as a "game changer" in the SCS, though they could serve to "quickly resupply and reinforce the military outposts on islands without air strips."

CAIGA brochures make no mention of a military application, but history indicates that seaplanes have a relatively small commercial market. The existing producers of large amphibious aircraft, Japan and Russia, indicate that the market for fire fighting and SAR missions is small, said Vasiliy Kashin, a China military specialist at Moscow's Centre for Analysis of Strategies and Technologies. Both aircraft producers are legacies of the Cold War, he said, and in comparison China has created a new design and established a new production line for an aircraft that has a terrible commercial market history.

"Since the program can hardly be justified by the civilian demand, the likely explanation is that the program has a significant military importance," Kashin said.

The AG600 is not the only seaplane under development by CAIGA. At the 2014 Airshow China, the company displayed models of the twin-engine turboprop-engine powered H660 and H631, each with a similar payload and range. There was also a model of the four turbofan-engine powered H680 Sea Eagle.

The company also builds two light passenger seaplanes, the 208B and HO300, both with a range of roughly 1,000-1,500 kilometers.
 
index.php


And yet more on those islands (because those seaplanes have to go somewhere, don't they?) in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from The Economist:

http://www.economist.com/news/asia/21659771-asian-coastguards-are-front-line-struggle-check-china-small-reefs-big-problems
the-economist-logo.gif

Small reefs, big problems
Asian coastguards are in the front line of the struggle to check China

Jul 25th 2015 | BEIJING, TAIPEI AND TOKYO | From the print edition

EVERY ten or so days, and rarely at weekends, the Chinese coastguard arrives at eight in the morning, in time for the Japanese foreign ministry to deliver a formal complaint to its Chinese counterpart by lunchtime. It is something of a ritual these days. Chinese vessels breach the 12-mile territorial limit of Japan’s Senkaku islands, which China claims and calls the Diaoyu islands. Japanese coastguard cutters shadow them warily until the Chinese decide that national honour has been satisfied and sail away. Call this little dance an improvement: in 2012, with anti-Japan fervour at its height, aggressive incursions into Senkaku waters highlighted the risk that China might even provoke a war with its neighbour over the uninhabited rocks.

That the dance is carried out by coastguard vessels, white-painted and minimally armed, also allows both sides to disengage more easily. Yet gunmetal-grey warships lurk nearby. One reason China has backed off in recent months is the solid presence of the Japanese navy just over the horizon. And were the two countries ever to come to blows over the Senkakus, America has made it clear it would come to Japan’s aid. (It claims no view over the territorial dispute, which did not stop it using the Senkakus for bombing practice during its post-war occupation of Japan.)

Facing pushback in the East China Sea, China has turned to softer targets: the islands, reefs and atolls of the South China Sea. These have long been the subject of territorial disputes among littoral states, especially involving the Philippines and Vietnam. But China has increased the tensions sharply in the past year. First, without consultation it towed an oil rig into Vietnam’s claimed Exclusive Economic Zone (EEZ). More troubling is confirmation of China’s massive landfill work on disputed reefs and islands a very long way from China’s shores. In contrast with Japan, China’s neighbours to the south are poorer and weaker, and they lack cast-iron American security guarantees. A vacuum has existed in the South China Sea since American forces withdrew from the Philippines in 1992.

Game of shadows

China’s neighbours are unnerved by its rapid increase in defence spending, in particular its pursuit of a blue-water navy. They note a Chinese president, Xi Jinping, who is not shy about flexing Chinese muscle. He likes to talk of China’s “peaceful rise” and of a “new type of great-power relationship”—one that appears to leave little space for small countries.

In both Beijing and Washington, strategists have long liked to grapple with whether America and China are destined to fall into a “Thucydides trap”. In the original, the Spartans’ fear of the growing might of Athens made war inevitable. The modern parallel states that an existing power (America) is bound to clash with a rising one (China). In Japan the point is made differently: at sea modern China is behaving with the paranoid aggression of imperial Japan on land before the second world war. “They are making the same mistakes that we did,” says a Japanese official.

For now, it is a game of diplomacy, legal manoeuvre, positioning and the creation of facts on the ground (or, rather, on the water). It is played mainly by non-military forces: dredgers and barges; oceanographic and other survey ships; and, above all, coastguards. China insists that its landfill work is intended to provide public goods such as lighthouses, typhoon shelters for fishermen, weather stations and search-and-rescue facilities. But American defence officials are certain the purpose is, in fact, military. At Fiery Cross reef a new airstrip 3km (1.9 miles) long could take any of China’s military aircraft, and what look like hangars for fighters are being built. Artillery has been seen at another outpost. American planners say that these positions are vulnerable—“aircraft carriers that can’t move”, as one puts it—and would quickly be put out of action in any conflict. But short of war the artificial islands would serve as useful forward bases to project Chinese power.

China claims an ill-defined U-shape, the “nine-dashed line”, that encloses much of the South China Sea (see map) and clashes with the claims of several of its neighbours. Again, America affects to take no position on who owns what. Its priority, it says, is to preserve the right of free navigation by both air and sea. It periodically sends military reconnaissance aircraft near the newly built islands to make this point.

20150725_ASM991.png



China is not the first country to build in the South China Sea, but it is now by far the most energetic. By shredding trust with South-East Asian claimants, China’s actions make a long-promised code of conduct for dealing with territorial disputes ever more elusive. Its assertiveness has pushed several South-East Asian countries closer to America, lending justification for the American “pivot” to Asia. Countries alarmed at Chinese assertiveness have rushed to buy military equipment.

In the face of strong domestic opposition, Japan’s prime minister, Shinzo Abe, is pushing new security bills through parliament that would loosen the constraints on Japan helping its American ally. He would, for instance, like Japan to join the American navy in South China Sea patrols. Japan is also financing the construction of ten new coastguard vessels for the Philippines and six for Vietnam. It is all part of a concerted “anti-coercion strategy”, says Narushige Michishita of the National Graduate Institute for Policy Studies in Tokyo.

Meanwhile, Vietnam’s relations with America go from strength to strength (while it increases arms purchases from Russia). The Philippines has signed a new defence pact that would allow America to return to its former base in Subic Bay as well as other bases. And it plans to beef up its neglected armed forces. The shopping list includes new fighters, frigates and maritime reconnaissance aircraft. But, given the scale of the country’s corruption, some wonder how much of a punch the extra pesos will deliver.

Many are now closely watching the proceedings of a UN-sponsored arbitration panel at The Hague, where the Philippines is seeking a ruling on whether China’s building on submerged reefs confers the right to territorial waters and EEZs under the UN Convention on the Law of the Sea (UNCLOS). The panel cannot settle the question of ownership, but the Philippines is hoping for a moral victory that will undermine China’s vague but sweeping claims. China has refused to take part in the process, but is being drawn willy-nilly into the legal argument.

One China, one claim

At the junction of the East China Sea and the South China Sea lies Taiwan, which China claims. Tensions across the Taiwan Strait have greatly eased in recent years, as the Taiwanese president, Ma Ying-jeou, and his Kuomintang (KMT) have sought reconciliation with the mainland Communists. But a test of relations is on the horizon with a presidential election that is likely to see Mr Ma replaced by Tsai Ing-wen of the more independence-minded Democratic Progressive Party (DPP). She has tried to assuage American worries of cross-strait crisis by speaking of her desire to maintain stable, predictable relations with the mainland. But China does not trust her party.

Besides, the South China Sea disputes have the potential to become a new bone of contention between Taiwan and China. Taiwan shares identical claims to China’s in the East China Sea and the South China Sea. Indeed the nine-dashed line was first drawn up by the KMT in 1946 (it had 11 dashes then) when it still ruled China and set out to retake islands following Japan’s surrender. Identical claims actually suit China, since they reinforce the pretence that there is just “one China” (with China and Taiwan disagreeing over precisely what it is). But America recently pressured Mr Ma to clarify Taiwan’s claim as a means of undermining the absurdly sweeping nature of China’s.

Mr Ma, a Harvard-trained lawyer who is keen that his country is seen to be upholding international law, said that under UNCLOS Taiwan claims only the 12-mile limit around its islands, not all the seas within the nine-dashed line. A DPP government might adopt a still narrower position. Ms Tsai insists that Taiwan will defend Taiping or Itu Aba, the largest island in the Spratlys, which it holds, but is vaguer about other features.

Diplomatic nuance will not change the inexorable shift that is taking place in Asia’s balance of power. Military experts offer the following rough reckoning: Taiwan lost the ability to halt a Chinese invasion on its own several years ago; Japan may be able to keep protecting its farthest-flung islands only for another 10-15 years. So the longer-term questions are: can either country inflict enough damage on China to deter it from attacking and, more importantly, how far is America still willing or able to tip the scales? Two decades after a cross-strait crisis in which China fired missiles close to Taiwan, would America again deploy aircraft-carriers nearby as a warning? Few offer an unqualified “yes”.

Military thinking is changing markedly. America is seeking new weapons to try to break through China’s growing “anti-access/area denial” (A2/AD) capability. This involves, for example, anti-ship missiles designed to hold back the Americans, perhaps at the “first island chain” (which runs from Japan to Taiwan, the Philippines and Indonesia). Such is the mismatch that neighbours are now planning their own A2/AD strategies to fend off China.

Toshi Yoshihara of the US Naval War College thinks that Japan should focus on things like shore-based anti-ship missiles, submarines, “guerrilla warfare at sea” with fast missile boats and mine warfare. America is quietly pushing Taiwan to adopt similar tactics. And Japanese officials privately admit that Taiwan’s security is essential to Japan’s. Andrew Krepinevich of the Centre for Strategic and Budgetary Assessments, a think-tank in Washington, DC, suggests that America should help extend what he calls “archipelagic defence” to the Philippines.

If you can’t beat them, contain them

Such advice may be a counsel of despair, an admission that the East China Sea and South China Sea are bound to become Chinese lakes, and that the best that can be done is to contain China within them. Nobody wants to test such notions, not least because of the risk tensions pose to global prosperity. The aim in the coming years must be to draw a rising China into co-operative relationships with its neighbours, while deterring bad behaviour.

China is hardly without internal problems, or indifferent to external pressure. Some experts in Beijing think their country has been too assertive at sea of late. China has said its land reclamation in the South China Sea is coming to an end. Mr Xi will want to avoid too many controversies ahead of his visit to America in September.

For now, whether competition in Asia can be prevented from turning into conflict may come down to whether the crews on lightly armed coastguard ships in the waters around China can keep their heads.


China is not practicing soft power politics here. This is naked hard power. China wants to establish itself as the premier power in East Asia: it wants America out but it will settle for America being in but emasculated.

My guesstimate is that China is willing to play "bumper cars' with ships and even a few aircraft. My guess is that they would be prepared to lose a plane and a ship, or two, or ... IF they felt that would contribute to the achievement of their goals. I suspect that the Chinese leadership sees the American government as weak and indecisive but, still, able to lash out with massive power. Once again, my guess is that they (the Chinese) are cautious but NOT afraid.

The fact that Japan, not America, is stepping up to support (arm) Philippines and Viet Nam is telling. The Japanese have a massive debt problem, far worse than America's, but they understand the stakes in this "game."

Look at this map:

                   
South-China-Sea-reference-map-US-CIA.jpg


The East and South China Seas are "narrow seas" (like the Baltic and Persian Gulf) as Alfred Thayer Mahan explained them and they are strategically vital and, therefore, dangerous.

(By the way, for those who note that the Strait of Malacca is even more strategically vital, and narrower still, the Chinese are exploring a canal, across Thailand, to bypass them ...

                   
globalmilitarism151_07.jpg
 
Enter the Dragon?

The Financial Times reports that "The International Monetary Fund’s board has been told Athens’ high debt levels and poor record of implementing reforms disqualify Greece from a third IMF bailout of the country, raising new questions over whether the institution will join the EU’s latest financial rescue."

That may mean that Greece needs one of two things:

    1. Debt relief from, especially, Germany and the other Northern European (responsible) Eurozone members ~ something that may be a difficult political problem; or

    2. A new source of external funding.

Could China be that new source of funding?

Despite problems in the Chinese domestic market, China is still sailing along on a virtual sea of cash ~ what it neds are better trading opportunities. How about a new "door" into Europe, through Greece?
 
The enforcement of the East China Sea ADIZ has begun...with a Laotian airliner?  ;D

Diplomat

A First: China Turns Back Commercial Flight For Violating East China Sea ADIZ Rules

China’s enforcement of its East China Sea air defense identification zone (ADIZ) is starting to work out
.


(...SNIPPED)

A little-noticed report published earlier this week in Air Transport World showcases one such case. According to that report, a Lao Airlines flight flying from South Korea’s Gimehae International Airport to Laos was asked to turn back by Chinese air traffic controllers and complied. The report notes that the Chinese air traffic controllers told the aircraft that it did not have adequate approval to pass through China’s East China Sea ADIZ. According to the report, the flight (No. QV916), an Airbus A320, was an hour into its scheduled flight path, “which would have put the aircraft over disputed areas of the China Sea,” before it turned back. Starting last year, Chinese air traffic authorities began to require that all civilian flights flying through the East China Sea ADIZ file pre-flight plans, transponder details, and other technical details ahead of their flights, according to the Air Transport World report. The incident involving QV916 is the first instance of a commercial flight being turned back due to a failure to comply with Chinese air traffic authority requirements, but at least 55 airlines worldwide are complying with the terms of China’s ADIZ.

The following image shows QV916′s flight path on July 25.

(...SNIPPED)
 
I wonder how the current economic crisis in China will affect their plans to host this?

Vancity Buzz

Beijing wins bid to host 2022 Olympic Winter Games
BY
KENNETH CHAN
2:58 AM PDT, THU JULY 30, 2015

Beijing has won the right to host the 2022 Olympic Winter Games, beating its only competitor Almaty, Kazakhstan to become the first city in history to host both the Summer and Winter Olympics.

On Friday, IOC members voted for Beijing in a narrow vote during the sport organization’s 128th session held in Kuala Lumpur, Malaysia. Beijing received 44 votes whereas Almaty had 40.

The Beijing Winter Games will of course come just 14 years after the 2008 Summer Olympics held in the same city.

(...SNIPPED)
 
Here's some belated posts from the past couple of months, to give some background on next year's Taiwan elections, which mainland China will be watching:

2 women candidates running against each other in the upcoming Taiwan presidential elections. Not surprisingly China is rooting for Hung, the pro-Guomindang/Kuomintang candidate. Meanwhile the pro-independence DPP candidate, Tsai, has grabbed international attention, to the point she was recently featured in the cover of Time magazine (Asia edition).

Shanghaiist

Taiwan to elect first female president in 2016 elections

Hung Hsiu-chu (洪秀柱) has received an average approval rate of 46 percent, qualifying her to be the Kuomintang (KMT)'s only candidate for Taiwan's 2016 presidential election.
Hung is expecting the KMT to formally nominate her on July 19, during the national party convention. Once she is nominated, she will be running against another female, the Democratic Progressive Party's (DPP) Tsai Ing-wen (蔡英文), who resigned as her party's chairperson after Ma Ying-jeou was re-elected as president.
“I hope this battle between two women will bring forth a whole new understanding and set an example of true democracy,” Hung tells reporters.

(...SNIPPED)

One of the 2 female presidential candidates in Taiwan's upcoming presidential election was featured on Time:

Shanghaiist

Tsai Ing-wen, chief of Taiwan's DPP, graces the latest cover of TIME

The Democratic Progressive Party's presidential candidate Tsai Ing-wen (蔡英文) has been featured on the international cover of TIME magazine ahead of Taiwan's upcoming 2016 presidential election.
The issue features a (paywalled) piece by Emily Rauhala on how the former DPP's party chair rose to become the early front runner in the upcoming January election and her vision for the future of Taiwan.

(...SNIPPED)

Reuters


China says will welcome only anti-independence candidate for Taiwan president

BEIJING (Reuters) - China on Thursday said it would welcome only an anti-independence candidate at Taiwan's presidential election in January, offering its first comment on the likely contender for the island's pro-China ruling Nationalist Party.

Taiwan is one of the most sensitive of all policy issues for the Communist Party in Beijing, which claims the island as its own and views it as a renegade province, to be bought under its control by force if necessary.

The vote in self-ruled Taiwan is shaping as a contest between two women, deputy parliamentary speaker Hung Hsiu-chu from the Nationalists and the pro-independence opposition Democratic Progressive Party's candidate, Tsai Ing-wen.

(...SNIPPED)

More on Hung, the KMT/Guomindang's frontman, or should I say, frontwoman:

Diplomat

The Challenging Road for Taiwan’s Newest Presidential Candidate
KMT candidate Hung Hsiu-chu faces an uphill battle, thanks to a controversial approach to cross-strait relations.


On June 14, Taiwan’s ruling party, the Kuomintang (KMT), announced that presidential candidate and deputy speaker of the legislature Hung Hsiu-chu passed the minimum polling criteria of a 30 percent approval rating, with an average of 46 percent approval. After gaining the approval of the Central Standing Committee, Hung was officially nominated by the KMT in the national party congress on July 19.

Nicknamed “Little Hot Pepper,” Hung is known for her straightforward speaking style in the legislature. She’s been equally fiery in her policy pronouncements. When Hung announced she would seek the KMT nomination, she proposed “one China, same interpretation” as the plank for her cross-strait policy. Under the “one China, different interpretations” of the1992 Consensus, the Republic of China (ROC) and the People’s Republic of China (PRC) both claim to be the sole representative of China. Hung argues that this consensus has already served its purpose. She would like to upgrade the 1992 consensus to both sides having the “same interpretation” of “one China,” laying the foundation of a stable relationship between two sides. Hung has also championed a cross-strait peace agreement, which she says will ensure a legal basis for the peaceful interactions between Taiwan and the Mainland.

(...SNIPPED)

Interestingly, one of the DPP candidates is a Tiananmen dissident who escaped from the mainland:

Shanghaiist

Tiananmen dissident Wu'er Kaixi runs for seat in Taiwan's parliament

Wu’er Kaixi, a Chinese democracy activist and one of the former student leaders in the 1989 Tiananmen Square protest, has announced that he will be running for a seat in the Taiwan parliament.
Twenty-six years ago, Wu’er fled China and moved to Taichung after Beijing's brutal crackdown on pro-democracy protests at Tiananmen Square, and has now pledged to fight for human rights and justice in his adopted home. He also pledged to take a tougher approach to Taiwan’s relations with China.
Wu’er’s rival, Chang Liao Wan-chien, a Democratic Progressive Party (DPP) contender, will also be running for the same parliament seat in Taichung. Recently, Wu’er reached an agreement with Chang whereby the one with the least support would endorse the other in a bid to unseat Tsai Chin-long, an incumbent legislator from the pro-China Kuomintang (KMT). They both agreed that Tsai must be defeated.

(...SNIPPED)
 
Back
Top