Gordon G. Chang's Blog, page 14

Only Tariffs Will Stop China's Cyber Attacks

On Monday, GreatFire.org, an Internet monitoring group, charged that China launched “a malicious attack on Apple in an effort to gain access to usernames and passwords and consequently all data stored on iCloud.”

The “man-in-the-middle” attack, which deceived users into logging onto a Chinese government-controlled website instead of Apple’s, was directly traceable to China’s central government. “We know that the attack point is the Chinese Internet backbone and that it is nationwide, which would lead us to be 100 percent sure that this is again the work of the Chinese authorities,” said Charlie Smith, GreatFire co-founder, to the South China Morning Post. Only the Chinese government and Chinese Internet service providers “have access to the backbone.”

The hacking occurred just after Apple began storing iCloud data on China Telecom servers to “ease the tension” with the Chinese government.

The attacks were similar to China’s assaults on Google, GitHub, and Yahoo, and are not the last ones we will see. “We expect that there will be more attacks in the near future and that they will increase in severity,” said Smith.

The Chinese Foreign Ministry, when asked about Beijing’s involvement, used its stock phrase that China “firmly opposes” hacking.

News of the assault on Apple came just days after US Secretary of State John Kerry met with Chinese State Councillor Yang Jiechi at his home in Boston. There, Yang disappointed America’s top diplomat. “Due to mistaken US practices, it is difficult at this juncture to resume Sino-US cyber security dialogue and cooperation,” Yang said, according to a statement posted on the Chinese Foreign Ministry website. Moreover, he stated that the US “should take positive action to create necessary conditions for bilateral cyber security dialogue and cooperation to resume.” 

We should not be surprised by Beijing’s refusal to talk. China each year steals something in the vicinity of $100 billion of US intellectual property—or perhaps more—much of it using Internet connections.

Washington, however, has so far not found the right mix of policies to get the Chinese to stop the practice. The Justice Department indicted five officers of the People’s Liberation Army for cyber theft in May, but it’s unlikely that any of the quintet will ever be transported to the Federal District Court for the Western District of Pennsylvania to stand trial.

There is, unfortunately, only one way to stop the hacking of Apple’s iCloud and the intrusions into the networks of American foundations, charities, NGOs, governments, utilities, and companies. And what is that? Impose costs on China that are in excess of the benefits it receives from its crimes in cyberspace.  A good starting point is the recommendation (pdf) of the Blair-Huntsman Commission of an across-the-board tariff on Chinese goods. That’s the “positive action,” to borrow Yang’s words, that can get Beijing to end its predatory practices. 

Do that, and Yang will fly to Boston and plead for an appointment to discuss cyber issues with Kerry. Don’t do that, and America will continue to bleed. 

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Indian Economy to Overtake China’s

We are headed to “a world-turned-upside-down moment,” which could come as early as 2016. “That’s when,” Businessweek tells us, “India, always the laggard, may pull ahead of China and become the fastest-growing of Asia’s giants.”

Analysts used to ask, “Can India Catch Up with China?” Now, it looks almost inevitable.

There’s no mystery for the change in narrative. In a five-week-long election ending in May, 541 million voters went to the polls, and most of them demanded fundamental change. They rejected the ruling Congress Party of the Gandhi family, which had dominated national politics since independence in 1947, and gave a newcomer, the charismatic Narendra Modi of the Bharatiya Janata Party (BJP), an absolute majority in the Lok Sabha, the lower house of Parliament.

Modi had previously created a boom while serving as chief minister of a coastal western state. “He provided Gujarat with India’s first real free-market economy that led to new infrastructure and job creation,” said Subrata Mukherjee, a retired political science professor at Delhi University, to Bloomberg. A central pillar of Modinomics is that large businesses create jobs and prosperity.

In his short time as prime minister, Modi has traveled to Japan and the United States for meetings with Prime Minister Shinzo Abe and President Obama and has hosted China’s leader, Xi Jinping, in New Delhi. A central element in Modi’s summitry has been obtaining investment commitments; he’s thus far gotten a total of $100 billion, according to his own count.

“Now it is the turn of the states to capitalize on the opportunity,” he says. “The roads are wide open. The states that are ready can walk away with a major share.”

Whether India’s state governments take advantage of the opportunity depends on whether they “de-bottleneck,” make available land, build infrastructure, and issue permits.

Gujarat did those things when “SuperModi” ran it, but he now sits in faraway New Delhi, which has only limited influence with state officials.

Yet Modi’s sweeping election victory not only brought his party to power in the capital, it changed the mood across India. As the Wall Street Journal’s Geeta Anand and Gordon Fairclough report, voters this year rejected the subsidies and giveaways of the Congress Party because they wanted India to become a larger version of Gujarat. The breath of Modi’s victory, therefore, signals a clear rejection of the socialism of India’s founders. No wonder Indians speak of the “Modi wave.”

The new mood can be seen in Madhya Pradesh, the landlocked Indian state with a population of 73 million and a growth rate of 11 percent last fiscal year. There, Chief Minister Shivraj Singh Chouhan, also from Modi’s BJP, says it’s time for even faster growth. “In the field of agriculture, Madhya Pradesh has reached its peak,” he told Bloomberg in an October 9th interview. “Now we need to move toward industrialization.”

Not all of India’s 29 states and seven union territories will now follow Chouhan’s Madhya Pradesh, but those that don’t will get left behind, which means they will, in all probability, eventually begin to look for investment as well. The strength of India’s federalist system is that the best ideas compete as states and territories vie with one another. And now that there is a business-friendly ruling party in power, economic prospects for the country look brighter than they have for years.

It’s about time. In the fiscal year ended March 31st, India grew a relatively unimpressive 4.7 percent, the second consecutive year of growth below 5 percent.

It may take a few years for India to get back to 9-percent-a-year expansion, but now the country is at least moving in the right direction. The Central Statistics Office reports that gross domestic product was up 5.7 percent in the quarter ended June 30th, compared to the same period a year ago. In the previous quarter, growth was 4.6 percent.

Rajeev Malik, an economist with the firm CLSA, thinks that, given the current trends, 2016 will be “a big kicker” year. He predicts 7.2 percent growth then. He forecasts China’s will be at 7.1 percent.

Move over, China. In a decade, India could have both the world’s biggest population and fastest-growing major economy. Yes, it’s premature, but we can see why Modi talks about our era as “India’s century.” 

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China’s Economy Slides—and Capital Flees

In a few days, China’s official National Bureau of Statistics will report the results for both September, the last month of the third calendar quarter, and the quarter as a whole. Analysts generally expect growth of gross domestic product will fall slightly from the second quarter’s 7.5 percent. Bank of China, one of the country’s Big Four state banks, predicts the economy will expand 7.3 percent.

In reality, growth is far less than that. Especially indicative is electricity consumption, often viewed as a proxy for the economy as a whole and widely considered to be the most reliable indicator. Electricity was up 5.9 percent in June from the same month in 2013, up 3.0 percent in July, and down 1.5 percent in August. Notice a trend?

Some analysts are fond of saying that electricity is no longer as indicative as it once was because it tracks manufacturing and manufacturing is no longer the biggest sector of the economy, having been narrowly eclipsed by services, now about 46 percent of GDP.

The service sector, however, does not appear especially robust. For one thing, freight and logistics services are directly related to the deteriorating manufacturing sector. Moreover, construction, a big prop for services, looks like a disaster in the making. For the first eight months of the year, construction starts were down 10.5 percent.

Retailing, a big hope for optimists, looks to be in trouble. Stagnating consumption is evident from private surveys and, among other indicators, falling imports and negative same-store sales for retailers. In Walmart’s second quarter, the retailer’s international division had same-store sales growth in every country except China. Other major retailers also saw falling same-store sales in China during the quarter.

And it appears unlikely that there will be a significant pickup in consumption this year. Employment growth is probably now no better than it was last year: 0.36 percent, according to China’s Ministry of Human Resources and Social Security.  Moreover, the downturn in housing values—month-on-month prices declined in August for the fourth-straight month—will soon hit retailing hard because, for example, furniture and home appliance purchases will inevitably fall. Sales volumes for homes are also swooning across the country.

Exports are the one bright spot for the economy, but exports can no longer carry the entire economy.

Put all the factors together, growth this year will be less than in 2013. In 2013, growth was probably no more than 2.2 percent, not the 7.7 percent NBS reported.

The last Chinese recession, according to NBS, was in 1976, the year Mao Zedong died. What happens when the Chinese economy falls into recession this time?

For one thing, money will flee China faster than it does now. Many may think the sale of the Waldorf Astoria to a little-known insurance company in Beijing is a result of China’s strength—Hong Kong’s South China Morning Post called the record price “a clear sign that economic power is shifting away from the West”—but it looks more like a capital flight play. Why overpay for a slow-growth asset in need of substantial renovation if the prospects in China are so strong?

The truth is that the US looks like a much better bet than China. So the Chinese are bailing out of their own country, buying unloved assets like a slumping theater chain, AMC; a stodgy pork company, Smithfield Foods; and perhaps the riskiest bet in America, buildings in downtown Detroit. Why do we suspect this is capital flight instead of bargain hunting? A recent Barclays study shows that a stunning 47 percent of China’s rich plan to leave their country within five years.

The Chinese economy is based on several deeply flawed premises, but it has worked because the Chinese and foreigners believed that central government technocrats could create growth indefinitely. When they no longer have that confidence, money will flee fast, as it is starting to do now.

No economy can sustain itself in the face of accelerating and prolonged capital flight. And in a country where political discontent and social antagonism already appear high, it is not clear the one-party state can survive long-term economic distress. The Chinese now believe that high growth is normal, and they will probably not react well to a long Chinese downturn.

There is an assumption that China will own the 21st century, but it is just as possible that the country has progressed as far as it can within its existing framework. “This is a period of historic change in China,” noted Mark Schwartz in March. “There haven’t been many periods in history as exciting and as fascinating as this.” The chairman of Goldman Sachs Asia Pacific is absolutely correct—but perhaps not in the way he was trying to convey. 

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For Hong Kong, Nothing Is Better Than Something

“Beijing is not going to lose,” said Jeff Bader to the Washington Post on Thursday, referring to the ongoing student-led democracy protests in Hong Kong. Because, as he puts it, people in Hong Kong “have very good lives” and “don’t see democratic development as the key to a good life,” Obama’s former top Asia adviser suggests the protesters accept Beijing’s proposed procedures for the 2017 election for chief executive, the city’s top political official.

His recommendation is wrong on many counts but especially because people in Hong Kong should not legitimize the upcoming electoral contest, the process that leads to it, or the rules that govern it.

On August 31st, the National People’s Congress in Beijing issued its proposed procedures for the election. China’s rubber-stamp legislature agreed to universal suffrage but insisted on nominating procedures so restrictive that only Beijing’s hand-picked candidates could compete in the election.

The next step will be for Hong Kong’s 70-member Legislative Council to vote on whether Beijing’s proposed election rules will go into effect. If two-thirds of the legislature, known as Legco, approves, Beijing’s rules will become law. If Legco turns them down, however, the next chief executive will be selected by the existing procedure, in which a 1,200-member Election Committee, packed with Beijing loyalists, makes the choice. Whether China’s proposals are adopted or not, senior Chinese leaders will continue to choose the city’s chief executive.

Bader essentially endorses the Communist Party’s plan. “You need demonstrators and sensible leaders among the democrats to say, ‘This election China’s promised is better than what Hong Kong had before,’” he argues. “It’s universal suffrage; it’s the first time Hong Kong will ever have a competitive election for chief executive. It falls short of a free, open competitive election. But it is at least a competitive election, where candidates have to appeal to the public to win.”

Is something better than nothing? There is a surface logic to Bader’s notion that this compromise is a step forward, as the nominating rules can be liberalized in future contests. Those who agree with Bader argue that Rome was not built in a day.

Why should Hong Kong reject Beijing’s plan? Elections confer legitimacy, and Beijing’s candidates do not deserve it, unless they win in elections open to parties of all stripes.

Universal suffrage, Bader should know, by itself is useless. After all, every adult in North Korea—except for those imprisoned—has the right to vote.

Beijing needs Legco to pass its plan, in other words, to confer legitimacy. There is so much resentment there that the city has become ungovernable. The government, knowing it lacks widespread support, has become hesitant of making even minor decisions if they look to be controversial.

The lack of legitimacy has meant that each of the three chief executives has been unpopular. Leung Chun-ying, the current one, never had a honeymoon after he took over in July 2012 and now has an approval rating of just 21 percent. A stunning 57 percent of Hong Kong disapproves of his performance.

Bader’s recommended course of action would reinforce Beijing’s control over the city. That’s perhaps why, in a series of demonstrations since July, hundreds of thousands of residents have taken to the streets to say they do not want “fake democracy.”

The people of Hong Kong know that sometimes nothing is better than something.

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Hong Kong’s Massive ‘Grand Banquet’ Protest

“While others are celebrating the big day of the country, we will set up a grand banquet in Central to fight for Hong Kong’s democracy,” wrote Benny Tai in the Apple Daily newspaper on Tuesday. “We welcome all pro-democracy supporters who are willing to devote themselves to this cause to join.”

Tai, a university professor and co-founder of the Occupy Central disobedience movement, was speaking in code. “Banquet” is now Hong Kong lingo for a mass sit-in demonstration; “big day” is October 1st, China’s National Day holiday; and “Central” refers to the city’s main business district. In effect, he was announcing that the long-awaited civil disobedience campaign in Hong Kong was about to begin.

Occupy Central was not always so excited. On September 2nd, Chan Kin-man, another co-founder of the organization, had signaled the defeat of the pan-democrats in Hong Kong by announcing that the movement was “close to failure.”

Why was the group so despondent then? Despite weeks of pleading and protests, people in Hong Kong were not able to persuade the Chinese government to allow an open election in 2017 for the chief executive, the city’s highest political official. Beijing’s proposal, issued on the last day of August, allowed universal suffrage—a step forward—but adopted a nominating structure so restrictive that only China’s handpicked candidates would be allowed to stand for election. Pan-democrats were disheartened by China’s intransigence, which would make the 2017 election a sham.

That’s when Tai, Chan, and their group almost threw in the towel. Yet fast-forward a few weeks and the pro-democracy movement has shaken off the blues and grabbed the initiative.

What happened? “When one cock dies, another crows,” the Cantonese of Hong Kong are fond of saying. Younger Hong Kong residents started a series of protests that have captured the imagination of the beleaguered city. On Monday, university students began a weeklong boycott of classes with a protest of 13,000. On Tuesday, they mobbed Leung Chun-ying, the current chief executive, at the government’s headquarters, and on Wednesday they marched on Central without the required police authorization, an act of disobedience. On Friday, secondary school children joined the boycott.

And now it’s clear that, as Tai signaled on Tuesday, Occupy Central will go forward with its plans to shut down Hong Kong’s central business district with a peaceful sit-in on October 1st. There are now many cocks crowing in Hong Kong.

It’s not entirely clear how the people of Hong Kong will react to Occupy Central’s civil disobedience, but so far their government, by doing Beijing’s bidding, looks like it is unintentionally drumming up support for the protesters. Officials have just refused permission to a democracy group, the Civil Human Rights Front, for a march on October 1st. By proscribing peaceful protest, the Hong Kong government helps justify Occupy Central’s planned disobedience.

The ultimate problem for Beijing officials is that they have lost hearts and minds in the city, a Special Administration Region of China. A Hong Kong University survey, conducted early this month, shows that 52 percent of respondents do not trust the Chinese central government, while only 30 percent do. That’s the highest level of distrust of Beijing since June 1995. At the same time, belief in China’s “one country, two systems” formula for the governance of the city is at the lowest level since 1993, when polling began. Respondents, by a 53 percent to 37 percent margin, said they did not have confidence in the concept.

Hong Kong people, long thought to be apolitical, now want a greater say in their lives, and at this moment they look like they are going to do something to get it.

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US Won’t Help Taiwan Build Subs, But Will Japan?

This month, there was a “flurry”of activity in Washington as Taiwan sought help in building submarines. Yet because American policymakers are more concerned about the reaction of the expansionists in Beijing than the needs of beleaguered defense planners in Taipei, Washington remained unmoved by the island’s efforts.

Taiwan, which Beijing views as its 34th province, is putting on a full-court press on subs so that it can remain a free society. In recent days, the American chief of naval operations, Admiral Jonathan Greenert, said he talked to colleagues in Taipei about submarines; a delegation from Taiwan was lobbying Congress for help; and Representative Ed Royce, chairman of the House Committee on Foreign Affairs, said the US supported the island building its own subs.

The world would be a safer place if Chairman Royce were right. “A much larger Taiwanese submarine force will deter war on the Taiwan Strait,” notes military analyst Rick Fisher. Finding and destroying modern conventionally powered submarines is one of the most difficult tasks a navy can undertake, he says, and a large fleet of hard-to-detect Taiwanese subs could prevent Beijing annexing the island by force, at least with just conventional arms.

Unfortunately, there is nothing but a “zero indication” that the White House will help Taiwan’s sub program, as Rupert Hammond-Chambers, president of the US-Taiwan Business Council, states. Washington insists that Beijing and Taipei settle matters peacefully, but China is configuring its military to launch an invasion of the island republic.

At the same time, the US is increasingly unwilling to help Taiwan protect itself, despite the Taiwan Relations Act, which imposes an obligation to sell the island “defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability.” It is incongruous that American diplomats talk about peace while pursing policies that, by keeping Taiwan weak, pave the way for war.

President George W. Bush, in April 2001, offered Taiwan a package that included eight diesel subs, but since US shipyards no longer built them, the pledge amounted to a promise to help the island find a Western manufacturer. German and Dutch yards refused to sell such submarines to Taipei for fear of angering Beijing, and Washington essentially dropped the matter.

Today, the US policy establishment is still trying to placate Beijing. Unfortunately, the Chinese cannot be “engaged,” to use the current term for appeasement, but there is something else wrong with Washington’s strategy. As the US becomes less and less reliable as a security guarantor, Taiwan has more and more incentive to turn elsewhere.

Washington may not see a need to defend the little democracy, but Japan certainly does. Its southernmost island is about 65 miles from Taiwan, which means that Beijing can put the Japanese at risk by absorbing the Taiwanese homeland. Tokyo, having ended its self-imposed ban on weapons exports in April, is in the midst of concluding a deal to sell to Australia as many as 10 ultra-quiet Soryu-class subs, the world’s largest diesel-electric boats. The arrangement, worth perhaps as much as $18.7 billion, appears to be upsetting Beijing, but nations around the region are taking Chinese opinions less into account these days.

Take the Japanese, who need to protect their southern flank. Last week, Fisher relayed to me and others his conversation with a senior figure in the Diet, the national legislature, who suggested Tokyo might assist Taiwan acquire less advanced subs. The Japanese would surely not let Taiwan have the Soryu—whose name means “blue dragon”—for fear of Chinese spies on the island getting their hands on Japan’s latest designs, but Tokyo is now eager to work with others in the region.

In recent decades, Beijing had successfully outmaneuvered Taiwan, but as Arthur Waldron of the University of Pennsylvania points out, Chinese leaders overreached. “China is opening up a bypass to her hitherto successful isolation of Taiwan by frightening other countries into becoming self-sufficient and ceasing to rely on us,” he noted to me and others last week. And referring to other nations helping the Taiwans “China will not be able to control this,” he wrote.

As Fisher notes, Taiwan’s need for subs is “glaringly obvious.” If the Obama administration does not want to assist Taipei, others will. Maybe Japan will become the new arsenal of democracy. 

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Russia’s New ‘Energy Alliance’ with China

On the first of this month, Russian President Vladimir Putin and Chinese Vice Premier Zhang Gaoli both autographed a pipe section at a ceremony near Yakutsk, the capital of the Russian Republic of Yakutia. By the beginning of 2019, gas will flow through the section—and the rest of the 3,968-kilometer Power of Siberia pipeline—from Russian fields to Chinese consumers. Putin and Zhang called the endeavor, which connects two existing pipeline networks, the world’s largest construction project. 

Russia and China are fast building an “energy alliance,” as AFP termed it this month. Last October, Moscow’s state-owned Rosneft and Beijing’s China National Petroleum Corporation signed a “breakthrough” deal, giving the Chinese an equity stake in an oil field in Eastern Siberia. This May, Russia’s Gazprom and CNPC entered into a 30-year, $400 billion gas deal, another landmark agreement.

And this month, Putin offered a slice of Rosneft’s Vankor oil field to CNPC. As the Financial Times notes, the deal “represents a stunning change in strategy.” In the past, Russia would partner with a foreign energy company if it needed technology. The country, however, possesses all the expertise it requires for this field, and Vankor is already producing oil. So why offer a stake to China? The Kremlin is hungry for Beijing’s cash.

As the paper noted, “This new rapprochement is more a sign of weakness than strength.” Since 2009, China has been lending money to cash-short Rosneft, and recent sanctions have made the plight of the company even worse, forcing it to seek a bailout so that it can pay debt of more than $30 billion.

Russia looks like it has had enough of the West and is turning East. As Putin said this month about access to his country’s energy resources, “We generally take a very careful approach to the approval of our foreign partners, but of course, for our Chinese friends there are no restrictions.”

Chinese cash will fuel Putin’s ambitions and make him less vulnerable to Western economic pressure, yet his solution creates new complications. First, the Russian leader is going to find out what it is like to be at the mercy of a ruthless counterparty. The Kremlin, playing divide and rule, is used to bullying European gas purchasers, but Beijing is not leaving itself exposed like the Euros. China has used CNPC for all the major deals with Moscow and the smaller Yamal LNG contract as well. Putin will get to know how miserable life can be when there is only one major taker in Asia for his oil and gas.

Second, the Chinese may not need all the hydrocarbons they have committed to take. At first glance, it appears they will have to continue to scrounge for oil and gas, as every forecast shows increasing demand. For example, the US Energy Information Administration projects the country will consume more than twice as much energy as America in 2040. Forecasts like this one are essentially the product of extrapolation, however, and China’s energy demand could go flat if its manufacturing sector continues to decline. There are other customers in Asia—notably Japan and South Korea—but they will bargain prices down if the Chinese walk away from their purchase obligations.

The ultimate problem for Putin & Co. is that China is not a good fit for the Russian economy. Yes, China is Russia’s largest trading partner, with two-way commerce of $90 billion last year, and the pair is shooting for $200 billion in ten years, but there is a limit to this growth.

China just wants Russia’s commodities and military technology, but, unfortunately for long-term ties, the Chinese do not make what the Russians crave, advanced oil refining equipment and luxury items. Europe and the US are still the better economic partners for Russia, as Marlen Kruzhkov of the New York-based law firm Gusrae Kaplan Nusbaum points out.

For geopolitical reasons, Moscow will build its economy on the foundation of energy sales to China. Russia will find in Beijing the support and encouragement that other capitals, troubled by the Kremlin’s external behavior, will deny it. In the long run, however, it’s far from certain that Russia can maintain economic vitality by relying primarily on the Chinese. 

Photo Credit: www.kremlin.ru

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North Korea Parades Three American Prisoners

In a surprise move on Monday, North Korea permitted CNN to conduct three five-minute interviews with Kenneth Bae, Matthew Todd Miller, and Jeffrey Edward Fowle, the three Americans Pyongyang is holding for various reasons. In their comments, each of the captives urged Washington to do more to obtain their freedom.

It is virtually certain that the Kim regime arranged the interviews to obtain something from the US. It would seem, therefore, that something is up between Pyongyang and Washington.

As if reading from a script, each of the civilian detainees urged Washington to send a high-profile American to seek their release. This strongly suggests that the regime hopes to break the Obama administration’s sound policy of “strategic patience” with North Korea—a policy that refuses to deal directly with the Kim regime until it shows it can interact with the international community in good faith.

Kim has not been on the world stage lately, and any visit by a senior American diplomat would boost his stature abroad and the perceived legitimacy of his rule at home. It is a tactic his father, Kim Jong Il, used to great effect, famously luring former President Clinton to Pyongyang in 2009. For Kim, it humbled the US a bit and showed his power to his people. For Clinton, he freed two innocent Americans from the grips of an outlaw regime. Win-win. Now it would appear that the younger Kim is taking a page from his father’s playbook.

It is worth noting that there are unconfirmed reports that senior US officials made a secret trip to Pyongyang early last month to attempt to negotiate the release of the three Americans. If such a meeting did take place, the CNN interviews may well have represented the regime’s attempt to put pressure on the Obama administration. Something like a squeeze play.

Yet the young ruler may have had other purposes in mind. Analysts like to talk about Pyongyang sending signals with his various acts, yet in the final analysis outsiders can only guess what he has in mind this time. The three CNN interviews may tell us something positive is happening—Kim wanting to come to terms with the world by first establishing contact with Washington—or something negative—Kim hoping to be rejected so as to create an excuse for more provocations.

In any event, Kim Jong Un just dropped his calling card, and we will undoubtedly hear from him again soon.

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The Weak US Response to China's Aggression in the Skies

On August 19th, a Chinese J-11 fighter intercepted a US Navy P-8 reconnaissance plane in international airspace, 137 miles southeast of Hainan Island in the South China Sea.

Three times, China’s jet crossed directly under the slow-moving P-8, once coming perhaps as close as 50 feet. The J-11 also passed in front of the American craft “with its belly toward the P-8 to show its weapons loadout,” according to Pentagon spokesman Lieutenant Colonel Jeff Pool. “In doing so, the pilot was unable to see the P-8, further increasing the potential for a collision.”

Next, the Chinese pilot flew under the P-8 and then came alongside, bringing his wingtip within 20 feet of the Navy plane. Finally, the J-11 conducted a barrel roll over the P-8, passing within 45 feet. “The intercept was aggressive and demonstrated a lack of due regard for the safety and well-being of the US and Chinese aircrews and aircraft,” said Pool.

The big story, however, is not that the Chinese are engaged in risky maneuvers over the South China Sea—they have been flying aggressively there for more than a decade—but that American officials refuse to acknowledge Beijing’s military challenge to the US.

“US officials,” the Wall Street Journal reported on Sunday, “said the midair encounters may be attributable to a rogue pilot or group of pilots in a squadron responsible for intercepts in the South China Sea.” The encounter, in their view, was not “directly authorized by the Chinese military.”

Are Chinese pilots really freelancing? For one thing, there were three similar incidents over the South China Sea this year—in March, April, and May—and the US filed protests at the time. To think that a rogue was responsible for the incident this month is to believe that China’s political leaders and flag officers have lost control over junior officers, an extremely unlikely occurrence, especially given the rigid political controls in the Chinese military.

Moreover, the Pentagon disclosed the encounter only on Friday, three days after it occurred, to give the Chinese time to explain or express regret. Beijing did neither, an indication the provocation was in fact authorized.

And on top of this, the Chinese Ministry of Defense statement, released on Saturday in response to the Pentagon’s accusations, clearly showed Beijing’s intent was to stop the surveillance flights. Declared Colonel Yang Yujun in a statement, “It is large-scale, high-frequency close-proximity surveillance by the United States that endangers Chinese-US maritime and aviation safety, and that is the root cause behind any accidents.”

If anyone in Washington was in doubt, Xu Guangyu, a former general now at the misnamed China Arms Control and Disarmament Association, said the incident “was a form of admonishment.” “As long as the US continues to undertake this kind of unfriendly action, China will continue to issue this kind of warning,” he predicted. State media outlets put out the same message in a concerted campaign.

Some think that American officials knew the August 19th encounter was intentional but were trying to give Chinese leaders a way to back down without embarrassment. Yet it is optimistic in the extreme to think China will abandon its decades-old goal of ejecting America from East Asia because Washington officials wanted to protect the public image of their counterparts in Beijing.

In any event, the attempt was ill-advised. By trying to downplay the event, the US is essentially inviting China to continue its aggressive and destabilizing behavior. Why? Because by shying away from confrontation, American policymakers give Beijing the idea they still can be bullied—as they were in the April 2001 Hainan plane incident—and therefore give the Chinese even more incentive to engage in provocative acts.

China’s leaders and military officers are hostile, but it is Washington that is setting the stage for them to be dangerous. 

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China Policy as Cliché

“President Obama has made it clear that the United States welcomes the rise of a peaceful, prosperous, and stable China—one that plays a responsible role in Asia and the world and supports rules and norms on economic and security issues,” said Secretary of State John Kerry in Hawaii last week, in a major policy address. “The president has been clear, as have I, that we are committed to avoiding the trap of strategic rivalry and intent on forging a relationship in which we can broaden our cooperation on common interests and constructively manage our differences and disagreements.” 

Some observers marveled at how many clichés and abstractions America’s top diplomat was able to insert into just one speech. Said Peter Jennings of the Canberra-based Australian Strategic Policy Institute, “Countries will be a little disappointed that after the secretary’s six visits to the region, US policy seems to be still largely aspirational but lacking detail on how to achieve these aims.”

Kerry, like all American policymakers, is a little fuzzy when it comes to China, perhaps because he does not want to acknowledge that Beijing may not be capable of maintaining good relations with the US at the moment. A year ago, the Obama administration briefed both the New York Times and the Wall Street Journal that Xi Jinping, who became the Communist Party’s general secretary in November 2012, had consolidated political control quickly.

That judgment now appears premature. At the beginning of this month, sources reported that Xi, in a June 26th Politburo meeting, referred to strong resistance to his “anticorruption” campaign—“stalemate” is the term he used—and insisted he would push ahead regardless of the consequences to himself. “In my struggle against corruption, I don’t care about life or death, or ruining my reputation,” he said in comments confirmed by various sources.

Xi may have been indulging his sense of melodrama, but problems in pursuing his campaign—more of a political purge than a strike against venality—have resulted in his position remaining uncertain. There is speculation that other leading Communist Party figures, such as former supremo Jiang Zemin, are now starting to feel threatened and are counterattacking. Not everyone agrees with this assessment, but whatever the case at this moment it is unlikely that others in lofty political circles are going to allow themselves to be picked off one at a time.

And while Xi is attacking the corruption of his political opponents, he is also staking his rule on achieving what he has called the “Chinese Dream,” which envisions a strong and assertive nation. This means, among other things, that he cannot afford to be seen compromising Beijing’s expansive territorial claims, some of which are without substantial foundation. Worse, he is sponsoring actions asserting China’s dominance along its periphery.

Beijing, consequently, has been lashing out, in recent months provoking, among others, Japan, the Philippines, Vietnam, and Indonesia, as well as America. The latest target is India. On Sunday, Indian soldiers noticed that Chinese troops had advanced at least 25 kilometers into territory controlled by India, in Ladakh, the scene of prior incursions.

So the implication of a Communist Party in disarray is that Beijing has set itself on a disturbing course. With leaders in the Chinese capital feeling vulnerable, fewer (if any) are likely to endorse sensible policies. Kerry, not wanting to confront the situation, is repeating platitudes. By now, he must know that with words alone he cannot make progress with China on the issues that matter. Therefore, he is now talking about climate change, desperate to find a topic—any topic—where there is some possibility of cooperation and progress.

Even that may be asking too much of Chinese leaders at this point. As they slug it out, literally and figuratively, working with the US may not only be low on the list of their priorities, it may even be considered politically dangerous. So the forecast is for more disturbing behavior from Beijing—and more clichés from Washington. 

OG Image: Asia PacificChinaUSUnited StatesBarack ObamaJohn Kerry