Ken Estes Posted June 21, 2005 Posted June 21, 2005 http://in.news.yahoo.com/050607/137/5yuwy.html SINGAPORE (Reuters) - China's biggest offshore oil producer, CNOOC Ltd., said on Tuesday it was still looking at buying Unocal, putting it back in contention with Chevron's $16.4 billion bid for the U.S. producer. Like I said, the Chinese are not coming, at least in the way the thread was inclined to think. Reminds me of the mid-80s when I was thinking that the IJN was revenged. no need for a second effort vs. Midway, as I watched thousands of Toyotas, Nissans, etc. being offloaded on the docks of Seattle, from ships named "Nippon xxx Maru" or some such. They ran out of gas, of course, due in no small part to their real estate and banking bubbles, but the Red Chinese have no such handicaps.
pikachu Posted June 22, 2005 Posted June 22, 2005 They ran out of gas, of course, due in no small part to their real estate and banking bubbles, but the Red Chinese have no such handicaps. They do. Even worse than Japan's. Their banking system is one big bubble, and Morgan Stanley analysts have been bemoaning Shanghai's real estate bubble for the past two years, if not more. At this rate, they'll run out of gas just like Japan did in about 10-15 years. Of course, the difference lies in scale. By the time they do run out of gas, they'll be big enough to dominate Asia anyway. Maybe even directly compete with the US.
JOE BRENNAN Posted June 22, 2005 Posted June 22, 2005 (edited) 1. They do. Even worse than Japan's. Their banking system is one big bubble, and Morgan Stanley analysts have been bemoaning Shanghai's real estate bubble for the past two years, if not more. 2. At this rate, they'll run out of gas just like Japan did in about 10-15 years. Of course, the difference lies in scale. By the time they do run out of gas, they'll be big enough to dominate Asia anyway. Maybe even directly compete with the US.186506[/snapback]1. Yes the level of bad loans in the Chinese banking system is already a higher % than in Japan in the "lost decade". Besides any bubbling along the coasts/south with real estate, etc, you have the backdrop of already years of loans to ossified state owned entities, another part of China's economy that is not booming. There are at least three parts even still to oversimplify, booming coasts/south private entities, interior rural, and old industry dominated by often sick state owned firms. Not really comparable to Japan there. 2. But the whole comparison to Japan in 90's is fundamentally flawed because Japan "ran out of gas" with a PPP GDP per capita around 85% that of the US (and fell back to ca. 75% now). China needs to go from ~10 to ~30 or even less, whole different part of the development curve. The Japan example does show "economies that get hyped in the newspapers can suffer setbacks", but that's really all. When looking at the relatively modest (compared to several culturally basically similar Asian countries before it) part of the "Asian growth curve" China has to traverse to pass the US in total economy size, it would seem likely this will happen, in something like 30yrs even allowing for likely hiccups, otherwise perhaps less. Though if there's a total meltdown it might never, but no one can predict such things. Joe Edited June 22, 2005 by JOE BRENNAN
jakec Posted June 22, 2005 Posted June 22, 2005 Fair enough on the Japan example. But many in China think/fear a more appropriate comparison would be with large developing countries like Brazil and Argentina. They too looked to be doing pretty well for a while, but when their per capita GDP got to around US$5000 they fell over for a variety of reasons all too close to home for those in Zhongnanhai. There is still as much chance that China will turn out like them as that it will keep booming for decades at 7%+ GDP growth.
swerve Posted June 22, 2005 Posted June 22, 2005 Fair enough on the Japan example. But many in China think/fear a more appropriate comparison would be with large developing countries like Brazil and Argentina. They too looked to be doing pretty well for a while, but when their per capita GDP got to around US$5000 they fell over for a variety of reasons all too close to home for those in Zhongnanhai. There is still as much chance that China will turn out like them as that it will keep booming for decades at 7%+ GDP growth. Argentina became rich in the late 19th century, by the standards of the time, as an exporter of meat, wool, grain etc. Its manufacturing industries developed behind protective tariffs as import-substitutors, & never progressed to successfully exporting. So the economy stuck at the level it could support with agricultural exports. Domestic savings are low, & government-supported attempts to borrow abroad & invest its way out of its rut have failed - more than once - when foreign debts become excessive. Currently about 30% of US GDP per head*, so if China reached Argentinas level it'd be ahead of the USA in absolute GDP. Brazil was similar at a lower level of income. In the 1960s & 1970s it tried to develop a modern industrial base, with some success, but did it with money borrowed from abroad. Since, like Argentina, its manufacturers sat behind their tariff barriers supplying domestic demand, its boom ran out of gas as soon as interest rates went up, because it hit a debt-service crisis. Picking up now, but still bedevilled by low savings rates & a high propensity to import. 20-25% of US GDP per head*, so China at Brazils level would equal US total GDP. China has a savings rate adequate to finance all its investment (indeed, a surplus of investable savings, leading to lots of pointless investment & bad loans), export-oriented manufacturing, is a huge net creditor, etc, etc. The Chinese economy has problems, but they're totally different from those of Argentina & Brazil. If it fails, it'll fail in a different way. *at purchasing power parity.
JOE BRENNAN Posted June 22, 2005 Posted June 22, 2005 Fair enough on the Japan example. But many in China think/fear a more appropriate comparison would be with large developing countries like Brazil and Argentina. They too looked to be doing pretty well for a while, but when their per capita GDP got to around US$5000 they fell over for a variety of reasons all too close to home for those in Zhongnanhai. There is still as much chance that China will turn out like them as that it will keep booming for decades at 7%+ GDP growth.186619[/snapback]Besides what was already said (eg. Argentina would have had the biggest PPP GDP in the world for many decades and still today if it had China's population, and China exports capital while repeated crises for those two countries have related to importing it) a lot of economic performance is culture, and China's is very different from Argentina's and Brazil's. How different is the average of Paraguay and Uruguay's economic history than either of those because small? not a whole lot. While Japan and Korea (more than either likes to admit) are cultural "children" of China to a significant degree, and Taiwan obviously (the Chinese on the mainland have to reach <40% the level of the Taiwanese to pass the US in total size). The success of Korea and Taiwan in my view has considerably tempered the idea, quite plausible some decades ago, that Japan is a highly unique offshoot of the Confucian tree, in terms of how its culture interacts with its economy and politics. The more likely theory appears to be that Confucian societies in general have high potential for wealth (though not necessarily entirely equal, that again would be the question of whether China ever matches Japan per capita, who knows? but it doesn't have to come anywhere near to be biggest) once they can work basic kinks out, like legacies of being dominated by the West or by each other. China could prove an exception, but comparisons to culturally completely different countries doesn't illustrate much IMO beyond again "anything can happen, you can't predict the future" which everybody already accepts. Joe
Josh Posted June 22, 2005 Posted June 22, 2005 Ran this by a friend who does IT for a investment branch of a major organization. Anyway, his view as influenced by the economy guru's who handle a large amount of investment in the PRC is that: 1). There's no firm prediction possible because the size of the population and resources involved is on a scale well beyond anything previously considered. The general consensus in his shop is 'there is no textbook case because there is no textbook' when it comes to the PRC economy. Not very informative I know, but these people are experts of a fashion, and I don't know makes me trust them all the more for it. 2). There's no reason why their economy can't continue to grow. Its been done many times by many other countries and in particular by countries that combine free markets with authoritarian rule (I assume this is largely a reference to the 'pacific dragons'). Also his view is that the political leadership is reasonably aware of hurdles in front of it. He prefered to list the problems that may or may not be facing sustained growth: 3). Labor prices and labor pool will never be a problem. Urban unemployment is around 10%, with specific municapalities greatly exceeding that. This isn't even considering the poorer hinterland. 4). Oil is an issue. If prices go up drastically then the economy will suffer (as will the entire industrialized world). 5). Urban crowding is an issue. In 1980 the ratio of urban to rural was around 25/75while projections in 20 years is 70/30. This is a real problem that will have to be tackled by the PRC. 6). Another potential point of contention is that 100 million people effectly own everything. This too will contribute to social unrest. 7). Investment. PRC laws concerning copywrite, patent, etc are nothing like those of the west. There is room for investment to be squadered or misappropriated to a much greater degree than in most other countries. Also the products of other countries that do invest in the PRC are often stolen. To this day there are warehouses full of black market DVD's and the like. My aside: if I remember correctly, its often the PLA itself that runs most of this industry. Since the US's major exports are this point are movie, music, and mircocode, it will be increasingly sensitive to patent issues and will ultimately push back. I would add that obviously investment will slip if there is social turmoil and investor confidence is lost. So basically the opinion is if the PRC can maintain social order, fuel supply, and investment, the opinion is that it can sustain its growth though probably not at the 7-9 percent. That internal order thing seems to be where everyone is especially iffy, given the pace of change and discrepancy of the haves and have nots.
jakec Posted June 22, 2005 Posted June 22, 2005 Besides what was already said (eg. Argentina would have had the biggest PPP GDP in the world for many decades and still today if it had China's population, and China exports capital while repeated crises for those two countries have related to importing it) a lot of economic performance is culture, and China's is very different from Argentina's and Brazil's. How different is the average of Paraguay and Uruguay's economic history than either of those because small? not a whole lot. While Japan and Korea (more than either likes to admit) are cultural "children" of China to a significant degree, and Taiwan obviously (the Chinese on the mainland have to reach <40% the level of the Taiwanese to pass the US in total size). The success of Korea and Taiwan in my view has considerably tempered the idea, quite plausible some decades ago, that Japan is a highly unique offshoot of the Confucian tree, in terms of how its culture interacts with its economy and politics. The more likely theory appears to be that Confucian societies in general have high potential for wealth (though not necessarily entirely equal, that again would be the question of whether China ever matches Japan per capita, who knows? but it doesn't have to come anywhere near to be biggest) once they can work basic kinks out, like legacies of being dominated by the West or by each other. China could prove an exception, but comparisons to culturally completely different countries doesn't illustrate much IMO beyond again "anything can happen, you can't predict the future" which everybody already accepts. Joe186720[/snapback]Won't argue with the "culturalist" explanation for economic performance, only to say that I and plenty of other people disagree with it as the determining variable. As for China's situation, you ignore the huge "hidden deficits" problem when presenting a rosy outlook for China's capital position. Off the top of my head I can think of at least three key components to the hidden deficits - 1) social security liabilities 2) NPLs 3) local government debts. Over the next fifteen years the dimensions of these will emerge onto the government's balance sheet (or, if the shell game continues in each area, we will see mounting social unrest and economic instability). By continuing to solely focus on PPP aggregate GDP you marginalise the other side of the equation. Even if China manages 5.2% average annual GDP growth from 2003-2020, in nominal terms it will still likely be smaller than Japan, Germany, as well as far smaller than the US (about 20% of the projected US economy). While PPP is fun for making developing economies look bigger compared to developed economies, it is not the whole ballgame and presents an inflated picture of the future size of China's economy in comparison to that of the US. The current PPP exchange rates are substantially greater than market exchange rates because of the relatively lower cost of basic consumer goods and services in China. As China grows, the importance of these items in the typical market basket of Chinese consumers will fall while the relative cost of these items will rise because of increases in real wages. Consequently PPP exchange rates will not remain static; the gap between the commercial or market exchange rate and the purchasing power rate will narrow by 2020. Moreover, estimates of GDP at PPP exchange rates are useful for comparing living standards but often do a poor job of reflecting the purchasing power of defence budgets, especially for procurement. Advanced weapon systems incorporate technologically sophisticated materials and components that are sold at world market prices; the relatively lower cost of housing, personal services, and food that are captured using PPP exchange rates have little relevance for expenditures on these items. Of course, the problem with only looking at the nominal side of the equation is that it assumes the renminbi/dollar exchange rate will remain constant. Not a very likely proposition. Over the course of the next fifteen years, the market exchange rate should strengthen. So you really need to adopt a third method to project China's GDP that takes into account all these factors, explicitly adjusting for the current 'undervaluation' of the renminbi and for the effects that rising incomes - and hence wages - will have on the PPP exchange rate. You need a weighted average of the PPP and nominal forecasts.
swerve Posted June 23, 2005 Posted June 23, 2005 By continuing to solely focus on PPP aggregate GDP you marginalise the other side of the equation. Even if China manages 5.2% average annual GDP growth from 2003-2020, in nominal terms it will still likely be smaller than Japan, Germany, as well as far smaller than the US (about 20% of the projected US economy). While PPP is fun for making developing economies look bigger compared to developed economies, it is not the whole ballgame and presents an inflated picture of the future size of China's economy in comparison to that of the US. The current PPP exchange rates are substantially greater than market exchange rates because of the relatively lower cost of basic consumer goods and services in China. As China grows, the importance of these items in the typical market basket of Chinese consumers will fall while the relative cost of these items will rise because of increases in real wages. Consequently PPP exchange rates will not remain static; the gap between the commercial or market exchange rate and the purchasing power rate will narrow by 2020. Moreover, estimates of GDP at PPP exchange rates are useful for comparing living standards but often do a poor job of reflecting the purchasing power of defence budgets, especially for procurement. Advanced weapon systems incorporate technologically sophisticated materials and components that are sold at world market prices; the relatively lower cost of housing, personal services, and food that are captured using PPP exchange rates have little relevance for expenditures on these items. As you say, the PPP/exchange rate ratio will narrow as the GDP per capita increases, so the nominal, exchange-rate-converted GDP will rise faster than real GDP, relative to the USA, Japan, etc. But your first statement fails to take that into account. When Chinas GDP at PPP is 6 times that of Germany, instead of 3 times as now, it's unlikely it will still be smaller in nominal terms. Of course, recalculating the growth rate with a different price structure would produce a different result, & because the highest growth sectors are for the most part in internationally traded goods, recalculating at PPP prices would lower real Chinese GDP growth - but that exercise has already been done, several times, & it doesn't change the growth rate anywhere enough to change the basic picture. I ignore the official Chinese growth rates & use what I think are the best recalculated estimates, because otherwise things get silly. So anything I've said (& I think this probably also applies to Joe) has already factored this in. You're right about the limited relevance of whole economy PPP comparisons to the cost of advanced weapons systems. But it's implicit in what you also say that the relative cost of these to China will fall, as its price structure changes with increases in income, moving closer to world market prices. So as China gets richer, its ability to buy sophisticated weapons will increase even faster. You're mixing up the current situation & projections, inappropriately applying current relationships to future conditions where it supports your thesis, & assuming changed relationships where that gives your desired result.
JOE BRENNAN Posted June 23, 2005 Posted June 23, 2005 (edited) 1. As for China's situation, you ignore the huge "hidden deficits" problem when presenting a rosy outlook for China's capital position. 2. By continuing to solely focus on PPP aggregate GDP you marginalise the other side of the equation. 3. Moreover, estimates of GDP at PPP exchange rates are useful for comparing living standards but often do a poor job of reflecting the purchasing power of defence budgets, especially for procurement. 4. Of course, the problem with only looking at the nominal side of the equation is that it assumes the renminbi/dollar exchange rate will remain constant. Not a very likely proposition. Over the course of the next fifteen years, the market exchange rate should strengthen.186909[/snapback]1. The problems you mentioned were acknowledged, but have nothing to do with the statement contrasting China's export of capital to South American countries' import and mismanagement of such as a chronic problem. Japan has a huge national debt and exports capital, not a close relationship between those two things. Anyway the problems mentioned for China are likely to cause hiccups, even on scale of the Asian financial crisis of '97 (which didn't affect China much), but that's a long way from growth path altering meltdown. That crisis is receding into a blip for several of those countries, as mentioned, though a big deal at the time. Something way beyond that, meltdown, is possible as I said, but I still don't see a reason to assume it. Putting 2 and 4 together: I also mentioned that PPP has limitations right at the start, not news to me, but those numbers you gave assume almost halving the recent growth rate, and then assuming a very short time (I said considerably less than 50 yrs, perhaps 30 you're using 15, I simply said the current trends cross at 17 not that they would) so sort of assuming your own conclusion. Taiwan averaged 10% for 30 years up to around 1990, Japan 8-9 for 30yrs to 1975 (it's level was only a little below China's relative to US in 1945, surprisingly). Past performance is not gtee, etc.... but from way back in discussion, I haven't heard good analysis why China should be assumed to downshift to low growth at a level of GDP/head where similar countries roared on for quite a while. Also I don't think it's correct to assume the PPP exchange rate would necessarily depreciate markedly as the country developed. In theory it would stay the same and the market rate move to converge with it. Something like that happened with Japan v. US, though PPP rate did move. But market rate moved by a factor of more than 3 in 30yrs after they stopped pegging at 360/$ in 1970. And the official Chinese Yuan rate undervalues that currency now to begin with, substantially most agree. PPP is a concept with room for criticism as again I said the very first time I mentioned it. But the only way to look at relationships meaningfully over different countries at different times. A lot of the problem of this discussion is confusion like comparing Japan in 90's to China now and predicting a big slowdown; to compare real apples to apples you have to go the time period that's really comparable and you have to use PPP to make any meaningful comparison, can't say let's use nominal rates, but oh they might move. 3. But personnel is a big part of US defence costs. And manufactured goods of all kinds even pretty high end obviously are significantly cheaper to produce in China, though not by the full PPP/peg ratio, that's why a wave of outsourcing. Also your argument about currencies is somewhat at odds with your original theme in the thread. According to figures in another post China 4.3% US 3.3% of GDP on defence. I think US one is low but maybe China's is too. Anyway if we use them Chinese GDP is around 14% that of the US at pegged rate, so around 18% as much spending as us. But you call it a "massive" buildup. At PPP we'd say China spends around 63% of what we do, where "massive" would be a much more plausible adjective. It seems you'd need to accept PPP as more representative to support your original statements. I wouldn't, as again I repeatedly said, say anything absolute, except China will be a quite different economic animal to deal with as main strategic adversary (if it turns out to be) than the USSR was, much bigger and really is growing fast (CIA said USSR was too but that was consistently bogus snapshots not just a projection that turned out wrong; China has gone for the timebeing from overstating to understating their growth, because now functionaries are supposed to be cooling it off). Joe Edited June 23, 2005 by JOE BRENNAN
Matt L. Posted June 23, 2005 Posted June 23, 2005 Joe, I think your reasoning is sound. The real objection I have is that it is a lot easier to develop a ~100 milion person country that a ~1 billion person country. China, right now, is almost like two countries. One fast growing asian tiger and another (at least 50%, likely much more) pretty backward and agricultural. Ignoring the potential for social strife, the enfranchised group will likely grow along the trend you explained, but I don't see the disenfranchised group seeing very much if any of that. The upshot of all this is that the typical growth rate will peter out much sooner as the one group gets to a certain wealth that acts as a brake on growth. It's certainly possible that the disenfranchised people will get integrated into the growing economy as they go - continuing the growth to the eventual end you predict. The dictatorial government is the biggest impediment to this. They have a dillema. They can loosen the reigns enough to allow this restructuring, but they risk social unrest. If presented with the option of stabililty or growth with unrest they will likely choose the former. That's their pattern so far, and I think the risk to their economic growth rate is significant and real and not merely speculative. The average wealth and typical growth pattern is misleading with the underlying social dichotomy. Regards, Matt
pikachu Posted June 23, 2005 Posted June 23, 2005 China, right now, is almost like two countries. One fast growing asian tiger and another (at least 50%, likely much more) pretty backward and agricultural. That reminds me. About a year back, I had a chat with a visiting Taiwanese lecturer on sociology about this. Him being Taiwanese, I was expecting criticism or at least some degree of pessimism on this subject. What I got from him instead was food for thought. Basically, his position is that the "Chinese duality" is an advantage in the long term. Now, bear in mind that this guy isn't an economist, but he maintained that: 1) The separation is not just sociological but also geographical. There was literally a physical border between "developed China" and "left-behind China". He showed me a map of income distributions and I had to agree with him on this. Well, at least I had to last year, maybe things have changed since then; China changes very rapidly. The map he showed me was a rough division between regions where the average income per capita was above the national average (in red) and where it was below (in blue). You can see this smallish red hot region to the east and southeast surrounded by blue everywhere. Then he showed me another map showing "accessibility", basically a measure (which he didn't have time to detail) of the difficulty level for foreign companies to invest there. Sure enough, the "blue China" is more difficult to invest in. So I told him that, well, that's why. He told me, no, it's not as simple as that. 2) Looking at the trend of outsourcing from the West to China, the driving force is labor cost. It doesn't take a genius to figure this out, but "blue China" obviously has lower, in some places much more so, labor costs than "red China". So technically speaking, "blue China" is really where foreign companies should really want to go. Yet accessibility is very bad in that region, so very few multinationals set up shop there. Those that do set up shop find themselves plagued with horrendous infrastructure problems. 3) Accessibility to the blue region is not as bad for Chinese companies. My conspiracy theory alert flared up on hearing this, so I asked why. Surprisingly, there's no conspiracy. Chinese companies simply operate differently enough to make work easier for them. They know how to use the unofficial channels better, are willing to endure much worse discomforts, and are more able to harness the local resources than multinationals do. The example he gave me had to do with trucks. An American company manager finding his factory stuck in the middle of nowhere would bemoan the lack of good roads and the resulting maintenance costs incurred on his trucks. A Chinese manager sends a guy down to the nearest village to have the headman gather up any personal vehicle he can find available, string them up into a caravan and use them to haul goods to the nearest railroad station. Now how to get trains. Simple, another guy is sent to said station to grease the local boss to allow a train car out of the local commuter train to be used for company transport every day. Now the latter solution may sound iffy and inefficient, but it does get stuff done cheaper and the goods delivered on time. No trucks? Who cares? Home team advantage, pure and simple. 4) In conclusion, just as the West is outsourcing to "China" ("red China" to be precise), "red China" is also outsourcing to "blue China". What this ends up creating is a situation not unlike protectionism legislation. It makes Chinese companies more competitive domestically on the low end of the production scale, in effect shutting out foreign companies from a large section of the market. 5) The question then becomes: What happens when "red China" starts outsourcing the very products multinationals are outsourcing to them to "blue China"? Keep in mind that many of these are products meant for the export market. The guy I talked to said that they're seeing this already happening in some regions of China today. The end result is "made in (blue) China" products for the export market at prices even lower than the already low-priced "made in China" products we get at Wal-Mart. Add to that the much lower profit margins Chinese exporters are willing to live with, and you have all the potentials of a "second wave" of the "China effect". So I asked him why we aren't seeing this second wave yet, and his answer was that he doesn't know. He's not an economist. His personal guess was that home team advantage cuts both ways. Chinese companies work better in China, and American companies work better in the US. The Chinese may be able to produce stuff cheaper, but they're having trouble actually selling the stuff they make, so balance is maintained for the time being. Getting back to his field of study, he points out that from a sociological point of view, "blue China" today is right where "red China" was in the mid-'80s. All the symptoms are there. He then reminded me that "red China" closed the '80s with Tiananmen, but also that Beijing is very much aware of this stain on their history and would do anything they could to prevent a repeat. Personally, I'm not so sure. They can either end up with 9 more Tiananmens or 9 more economic booms. Then again, they may end up with one after the other.
Gabe Posted June 23, 2005 Posted June 23, 2005 (edited) If you were to look at that same map back in say 1990, "red China" would consist only of the Pearl River delta around Hong Kong and maybe the Shanghai area. Now that red part is nearly the entire seaboard. I expect this trend will continue and much of the present blue regions will too be red in another 15 yrs. What we'll likely see is sustained 7-9% growth during that period of time. China's rate of growth is slower than Japan's or South Korea's during their boom years. This inspite of a higher savings rate among Chinese than Japanese or Koreans. Some economists have said China's 9% growth is actually an underachievement. The main obstacles are their state enterprises, lousy banks, and lack of IT protection. If these can be tackled, and that's a big if - there's no reason Chinese economic growth must slow down in the next decade. Back to the red vs blue China topic again. Right now the Chinese economy is heavily export driven. But there's only so much K-mart merchandise Americans are gonna buy and that's a limiting factor. But what happens when red China - which presently has the population of the EU - reach a critical mass and start consuming cheap products like western countries do? What you'll have is a domestic consumption driven economic boom. Given how big blue China is, this could be sustainable for decades. That's the difference between China and a small market like South Korea. I think this phenomenon is only a few years away. Edited June 23, 2005 by Gabe
Matt L. Posted June 23, 2005 Posted June 23, 2005 <snip>Back to the red vs blue China topic again. Right now the Chinese economy is heavily export driven. But there's only so much K-mart merchandise Americans are gonna buy and that's a limiting factor. But what happens when red China - which presently has the population of the EU - reach a critical mass and start consuming cheap products like western countries do? What you'll have is a domestic consumption driven economic boom. Given how big blue China is, this could be sustainable for decades. That's the difference between China and a small market like South Korea. I think this phenomenon is only a few years away.187031[/snapback] A lot depends on whether "blue" China can follow the Asian Tiger route as a phase two of China's economic expansion. Or is their analogy Mexico? Chinese citizens are not free to move about in the country so the comparison may be more similar than it seems at first blush. For the "red" zone to start self perpetuating wealth generation would require real advances in productivity. The money doesn't just come out of nowhere. Considering the problems with corruption and weak legal systems this will be more difficult. Of course the Chinese government is trying to address this stuff to a degree, but they are deeply ingrained in the system. It takes time to change social structures and the ruling party is loathe to rock the boat too much. It will be interesting to see how far they can get with late 19th c. level institutions and social structure. Regards, Matt
jakec Posted June 23, 2005 Posted June 23, 2005 You're mixing up the current situation & projections, inappropriately applying current relationships to future conditions where it supports your thesis, & assuming changed relationships where that gives your desired result.186915[/snapback]And you're (deliberately?) misreading what I said, which was that neither nominal nor PPP provides an adequate model for comparing China's projected future GDP position with other countries, nor from that the amount of resources it may spend on the military. As I said, you need a third approach that takes into account the weaknesses of each and, I would suggest, gives results somewhere between the 20% of 2020 US GDP at nominal rates (assuming 5.2% average annual GDP growth, which is of course only my estimate and if you use say 7% you'll get different results) and the 80-90% at PPP rates. My criticism of Joe was that he only used PPP figures, and I don't accept, for the reasons outlined, that it is "the only way to look at relationships amongst different countries".
swerve Posted June 23, 2005 Posted June 23, 2005 Matt, to the rich coast & the left-behind interior I'd add some old industrial areas, mostly in Manchuria, which have been left behind by the southern & eastern coasts, & have high unemployment & declining heavy industry. The rich areas are still below the level of GDP per head at which the Japanese boom petered out, even at PPP, especially if (as seems likely) the national PPP conversion rate isn't appropriate for conversion of provincial GDP*, so have scope for continued growth. I agree with Gabe that there is also huge scope for catch-up by the backward regions of China. The Chinese government is currently engaged in what is probably the biggest road-building programme in history, linking the inland provinces to each other & the coast by high-capacity roads, & simultaneously upgrading inland waterways, railways, electricity supply, telecoms, etc. As infrastructire improves, the boom spreads - and it is already spreading. Pikachus accessibility problem is diminishing fast. Originally, it was just Shanghai & Zhejiang. Then Guangzhou joined in, & quickly overtook Zhejiang. The Shanghai-Zhejiang rich area then spread into Anhui (once one of the poorest provinces), & Fujien started booming. Shandong is going full tilt now, & it's started inland, in Wuhan & the main cities of Szechuan. *I've not seen an estimate for China, but estimates for other large countries with very large regional variations, such as Brazil, show that those variations become less extreme when one adjusts for regional PPP. The ratio between Sao Paulo & Piaui (the poorest) GDP PC went from 6:1 to 4:1 using internal PPP. I'm sure that's also true in China, that Shanghai prices of non-traded goods are much higher than in Gansu or Guizhou.
swerve Posted June 23, 2005 Posted June 23, 2005 And you're (deliberately?) misreading what I said, which was that neither nominal nor PPP provides an adequate model for comparing China's projected future GDP position with other countries, nor from that the amount of resources it may spend on the military. As I said, you need a third approach that takes into account the weaknesses of each and, I would suggest, gives results somewhere between the 20% of 2020 US GDP at nominal rates (assuming 5.2% average annual GDP growth, which is of course only my estimate and if you use say 7% you'll get different results) and the 80-90% at PPP rates. My criticism of Joe was that he only used PPP figures, and I don't accept, for the reasons outlined, that it is "the only way to look at relationships amongst different countries".187040[/snapback] I'm not misreading it, I'm rejecting it. If you use PPP, & take into account the change in growth rate due to the different price structure, your objections are answered. You can make projections of nominal GDP, but only if you adjust for the change in exchange rate which is likely as real GDP per head rises relative to other countries. But you have to ask, what is exchange-rate-converted GDP good for? It tells us the notional buying power on foreign markets of Chinas GDP, if (which it isn't) China was able to spend its entire GDP abroad. It's not a very useful figure. PPP tells us what it actually buys: it's a measure of something real. Of course, all PPP estimates are imprecise, because they add another level of uncertainty to already imprecise GDP estimates, but the way round that is to improve the quality of the data. You don't need to use whole-economy PPP for estimating military spending. You use different tools for different things. For estimating the burden to an economy of military spending, use own-currency GDP & military spending. No need to convert at all. For estimating it in comparable terms, construct, as far as possible, an appropriate PPP. It's routinely done for other comparisons, such as medical costs, & the CIA used to work very hard to do it for the USSR. Using such a specific PPP answers your other (perfectly reasonable) objection, that whole-economy PPP is inappropriate for estimating military potential. I don't see why you're trying to invent a 3rd measure, & one which seems to me to be arbitrary.
JOE BRENNAN Posted June 23, 2005 Posted June 23, 2005 (edited) My criticism of Joe was that he only used PPP figures, and I don't accept, for the reasons outlined, that it is "the only way to look at relationships amongst different countries".187040[/snapback]That's out of context. Only way to compare when also adding time factor, what did X country do in 1970-2000 v. Y in 1940-70. Trying to use current exchange rates for stuff like that tends to yield nonsense, there has to be some attempt at standardizing. Then at the end the conclusions are always limited, I consistently said that. Also you haven't addressed a central conundrum in your various statements: how can China's military (or naval specifically) buildup be "massive" if converted at the pegged rate, its expenditures are so small, and that's a plausible way to compare (that at least in your argument seems to merit being one part of some average, you haven't specificed). Re: Gabe, that's a good point I showed with figures, China is growing *slower* than Korea or Japan or Taiwan did in their (quite prolonged) growth heydays, when much poorer countries more like China now. So again why should China downshift to 5% any time soon? no evidence. Non-quantitative reference to their problems is not convincing, to me, stuff like bad banking system hold back growth *now* certainly to some degree, not a secret. Re; Swerve and it's part of Jakec debate it doesn't seem to me to hinge on technicalities of general PPP, defence PPP, market etc. The CIA was also notoriously unsuccessful in accurately estimating Soviet "real PPP" spending on defense. It was though a truly non-money economy (elements of China's state economy still are but not nearly as much) so harder. I see clear fact 1. China has already a large economy (even at official exchange rate) and is growing fast, fact 1. part II I don't see a reason to assume as a baseline a rapid slowdown of that. Fact 2., though the level of current PRC military power can be debated it's considerable (though I don't find the PLAN buildup "massive"). And fact 2. part II they don't by any estimate spend a dangerously (for their economy) large proportion of their GDP on defense (agreed that's the easy, simple measure for defense burden). Hence a very serious challenge, fairly powerful force whose resources seem highly likely to rise significantly relative to ours in the next few decades. I think it's obvious, that a general PPP measure doesn't precisely gauge ability to purchase any specific thing domestically, because it's constructed based on overall purchase, and defense isn't likely to be exactly like "overall". But in 30yrs when China's PPP GDP is bigger than ours if it is, commonsense comparison with today, without extensive "defense PPP" study, tells me that out muscling them will not be feasible, nor allowing them ahead in gross power of forces and hoping for an implosion. Broad general idea, they won't have to bear a heavier burden, we'll have to figure a way to avoid getting put in that position. Back to the beginning of thread, us buying more multi-$bil warships right now to meet a "massive" PLAN buildup (of vessels surely costing them a small fraction of that at pegged rate, though less capable too) is off to a bad start, not sustainable response in the long run. This has to be thought thru when PLA hype is used to justify bigger US military budgets, especially current procurement. Joe Edited June 23, 2005 by JOE BRENNAN
jakec Posted June 23, 2005 Posted June 23, 2005 Re Swerve and Joe: we seem to be arguing about the same thing, i.e. you can't just take today's PPP rates, linearly project them into the future, and hey presto say China is going to be as big as the US. You have to adjust them otherwise you are using the rates for a developing country long after it has ceased to be a developing country. Re the "central conundrum". We're looking at two different things in this thread. We started off talking very specifically about a present-day PLAN buildup. The criticism was this was something made up by the military industrial complex to justify higher defense spending. I responded to this by saying we should take the time to look at the facts on the ground before making a kneejerk response that this must be a beat-up job by the CIA-Pentagon-defence industries. I characterised the PLAN buildup as massive providing some numbers, taking the perspective of someone in the region, and relative to PLAN capabilities only five years ago. Others may disagree. Where you stand very probably depends on where you sit. That position has only marginal relevance to the discussion currently going on about where China might be in 20, 30, or 40 years time. How the Americans respond today to the PLAN buildup has to my mind little relationship to the distant future. Projecting the trends in US defence expenditure in the early 1980s into the future would lead to some very big and unaffordable numbers, but the reality is the trend (as do all trends sooner of later) turned the other way after 1985. Over and out.
JOE BRENNAN Posted June 23, 2005 Posted June 23, 2005 Re the "central conundrum". We're looking at two different things in this thread. We started off talking very specifically about a present-day PLAN buildup. The criticism was this was something made up by the military industrial complex to justify higher defense spending. I responded to this by saying we should take the time to look at the facts on the ground before making a kneejerk response that this must be a beat-up job by the CIA-Pentagon-defence industries. I characterised the PLAN buildup as massive providing some numbers, taking the perspective of someone in the region, and relative to PLAN capabilities only five years ago. Others may disagree. Where you stand very probably depends on where you sit.187368[/snapback]The two things still relate to one another. It's a contradiction to say a budget that according to you should be interpreted at the pegged rate, so 18% of the US level, produces a "massive" buildup. There are two answers to this contradiction I think. First the buildup is not massive, even as described. Still mostly low capability low end units. One main pillar of any serious challenge to US bluewater dominance is nuclear subs and PLAN nuke programs continue to crawl along. And "Red Aegis" as a Proceedings article described the pair of Project 52C DD's, while interesing ships, is hype. The other part of the answer is the Chinese buildup is not altogether negligible, their forces in total far from it. It's an easy empirical non-calculation intensive way to see that converting GDP's at the peg rate gives a highly misleading impression of China's ability to buy combat power compared to that of the US, and that the US ability to respond by just spending is unlikely to hold up in the longterm. Joe
Jeff Posted June 27, 2005 Posted June 27, 2005 An article by Bill Gertz in two parts Chinese dragon awakensBy Bill GertzTHE WASHINGTON TIMESPublished June 26, 2005 -------------------------------------------------------------------------------- Part one of two China is building its military forces faster than U.S. intelligence and military analysts expected, prompting fears that Beijing will attack Taiwan in the next two years, according to Pentagon officials. U.S. defense and intelligence officials say all the signs point in one troubling direction: Beijing then will be forced to go to war with the United States, which has vowed to defend Taiwan against a Chinese attack. China's military buildup includes an array of new high-technology weapons, such as warships, submarines, missiles and a maneuverable warhead designed to defeat U.S. missile defenses. Recent intelligence reports also show that China has stepped up military exercises involving amphibious assaults, viewed as another sign that it is preparing for an attack on Taiwan. "There's a growing consensus that at some point in the mid-to-late '90s, there was a fundamental shift in the sophistication, breadth and re-sorting of Chinese defense planning," said Richard Lawless, a senior China-policy maker in the Pentagon. "And what we're seeing now is a manifestation of that change in the number of new systems that are being deployed, the sophistication of those systems and the interoperability of the systems." China's economy has been growing at a rate of at least 10 percent for each of the past 10 years, providing the country's military with the needed funds for modernization. The combination of a vibrant centralized economy, growing military and increasingly fervent nationalism has transformed China into what many defense officials view as a fascist state. "We may be seeing in China the first true fascist society on the model of Nazi Germany, where you have this incredible resource base in a commercial economy with strong nationalism, which the military was able to reach into and ramp up incredible production," a senior defense official said. For Pentagon officials, alarm bells have been going off for the past two years as China's military began rapidly building and buying new troop- and weapon-carrying ships and submarines. The release of an official Chinese government report in December called the situation on the Taiwan Strait "grim" and said the country's military could "crush" Taiwan. Earlier this year, Beijing passed an anti-secession law, a unilateral measure that upset the fragile political status quo across the Taiwan Strait. The law gives Chinese leaders a legal basis they previously did not have to conduct a military attack on Taiwan, U.S. officials said. The war fears come despite the fact that China is hosting the Olympic Games in 2008 and, therefore, some officials say, would be reluctant to invoke the international condemnation that a military attack on Taiwan would cause. Army of the future In the past, some defense specialists insisted a Chinese attack on Taiwan would be a "million-man swim" across the Taiwan Strait because of the country's lack of troop-carrying ships. "We left the million-man swim behind in about 1998, 1999," the senior Pentagon official said. "And in fact, what people are saying now, whether or not that construct was ever useful, is that it's a moot point, because in just amphibious lift alone, the Chinese are doubling or even quadrupling their capability on an annual basis." Asked about a possible Chinese attack on Taiwan, the official put it bluntly: "In the '07-'08 time frame, a capability will be there that a year ago we would have said was very, very unlikely. We now assess that as being very likely to be there." Air Force Gen. Paul V. Hester, head of the Pacific Air Forces, said the U.S. military has been watching China's military buildup but has found it difficult to penetrate Beijing's "veil" of secrecy over it. While military modernization itself is not a major worry, "what does provide you a pause for interest and concern is the amount of modernization, the kind of modernization and the size of the modernization," he said during a recent breakfast meeting with reporters. China is building capabilities such as aerial refueling and airborne warning and control aircraft that can be used for regional defense and long-range power projection, Gen. Hester said. It also is developing a maneuverable re-entry vehicle, or MARV, for its nuclear warheads. The weapon is designed to counter U.S. strategic-missile defenses, according to officials who spoke on the condition of anonymity. The warhead would be used on China's new DF-31 long-range missiles and its new submarine missile, the JL-2. Work being done on China's weapons and reconnaissance systems will give its military the capability to reach 1,000 miles into the sea, "which gives them the visibility on the movement of not only our airplanes in the air, but also our forces at sea," Gen. Hester said. Beijing also has built a new tank for its large armed forces. It is known as the Type 99 and appears similar in design to Germany's Leopard 2 main battle tank. The tank is outfitted with new artillery, anti-aircraft and machine guns, advanced fire-control systems and improved engines. The country's air power is growing through the purchase of new fighters from Russia, such as Su-30 fighter-bombers, as well as the development of its own fighter jets, such as the J-10. Gen. Hester compared Chinese warplanes with those of the former Soviet Union, which were less capable than their U.S. counterparts, but still very deadly. "They have great equipment. The fighters are very technologically advanced, and what we know about them gives us pause for concern against ours," he said. Missiles also are a worry. "It is their surface-to-air missiles, their [advanced]SAMs and their surface-to-surface missiles, and the precision, more importantly, of those surface-to-surface missiles that provide, obviously, the ability to pinpoint targets that we might have out in the region, or our friends and allies might have," Gen. Hester said. The advances give the Chinese military "the ability ... to reach out and touch parts of the United States -- Guam, Hawaii and the mainland of the United States," he said. To better deal with possible future conflicts in Asia, the Pentagon is modernizing U.S. military facilities on the Western Pacific island of Guam and planning to move more forces there. The Air Force will regularly rotate Air Expeditionary Force units to Guam and also will station the new long-range unmanned aerial vehicle known as Global Hawk on the island, he said. It also has stationed B-2 stealth bombers on Guam temporarily and is expected to deploy B-1 bombers there, in addition to the B-52s now deployed there, Gen. Hester said. Projecting power China's rulers have adopted what is known as the "two-island chain" strategy of extending control over large areas of the Pacific, covering inner and outer chains of islands stretching from Japan to Indonesia. "Clearly, they are still influenced by this first and second island chain," the intelligence official said. The official said China's buildup goes beyond what would be needed to fight a war against Taiwan. The conclusion of this official is that China wants a "blue-water" navy capable of projecting power far beyond the two island chains. "If you look at the technical capabilities of the weapons platforms that they're fielding, the sea-keeping capabilities, the size, sensors and weapons fit, this capability transcends the baseline that is required to deal with a Taiwan situation militarily," the intelligence official said. "So they are positioned then, if [Taiwan is] resolved one way or the other, to really become a regional military power as well." The dispatch of a Han-class submarine late last year to waters near Guam, Taiwan and Japan was an indication of the Chinese military's drive to expand its oceangoing capabilities, the officials said. The submarine surfaced in Japanese waters, triggering an emergency deployment of Japan's naval forces. Beijing later issued an apology for the incursion, but the political damage was done. Within months, Japan began adopting a tougher political posture toward China in its defense policies and public statements. A recent Japanese government defense report called China a strategic national security concern. It was the first time China was named specifically in a Japanese defense report. Energy supply a factor For China, Taiwan is not the only issue behind the buildup of military forces. Beijing also is facing a major energy shortage that, according to one Pentagon study, could lead it to use military force to seize territory with oil and gas resources. The report produced for the Office of Net Assessment, which conducts assessments of future threats, was made public in January and warned that China's need for oil, gas and other energy resources is driving the country toward becoming an expansionist power. China "is looking not only to build a blue-water navy to control the sea lanes [from the Middle East], but also to develop undersea mines and missile capabilities to deter the potential disruption of its energy supplies from potential threats, including the U.S. Navy, especially in the case of a conflict with Taiwan," the report said. The report said China believes the United States already controls the sea routes from the oil-rich Persian Gulf through the Malacca Strait. Chinese President Hu Jintao has called this strategic vulnerability to disrupted energy supplies Beijing's "Malacca Dilemma." To prevent any disruption, China has adopted a "string of pearls" strategy that calls for both offensive and defensive measures stretching along the oil-shipment sea lanes from China's coast to the Middle East. The "pearls" include the Chinese-financed seaport being built at Gwadar, on the coast of western Pakistan, and commercial and military efforts to establish bases or diplomatic ties in Bangladesh, Burma, Cambodia, Thailand and disputed islands in the South China Sea. The report stated that China's ability to use these pearls for a "credible" military action is not certain. Pentagon intelligence officials, however, say the rapid Chinese naval buildup includes the capability to project power to these sea lanes in the future. "They are not doing a lot of surface patrols or any other kind of security evolutions that far afield," the intelligence official said. "There's no evidence of [Chinese military basing there] yet, but we do need to keep an eye toward that expansion." The report also highlighted the vulnerability of China's oil and gas infrastructure to a crippling U.S. attack. "The U.S. military could severely cripple Chinese resistance [during a conflict over Taiwan] by blocking its energy supply, whereas the [People's Liberation Army navy] poses little threat to United States' energy security," it said. China views the United States as "a potential threat because of its military superiority, its willingness to disrupt China's energy imports, its perceived encirclement of China and its disposition toward manipulating international politics," the report said. 'Mercantilist measures' The report stated that China will resort "to extreme, offensive and mercantilist measures when other strategies fail, to mitigate its vulnerabilities, such as seizing control of energy resources in neighboring states." U.S. officials have said two likely targets for China are the Russian Far East, which has vast oil and gas deposits, and Southeast Asia, which also has oil and gas resources. Michael Pillsbury, a former Pentagon official and specialist on China's military, said the internal U.S. government debate on the issue and excessive Chinese secrecy about its military buildup "has cost us 10 years to figure out what to do" "Everybody is starting to acknowledge the hard facts," Mr. Pillsbury said. "The China military buildup has been accelerating since 1999. As the buildup has gotten worse, China is trying hard to mask it." Richard Fisher, vice president of the International Assessment and Strategy Center, said that in 10 years, the Chinese army has shifted from a defensive force to an advanced military soon capable of operations ranging from space warfare to global non-nuclear cruise-missile strikes. "Let's all wake up. The post-Cold War peace is over," Mr. Fisher said. "We are now in an arms race with a new superpower whose goal is to contain and overtake the United States."
Jeff Posted June 27, 2005 Posted June 27, 2005 Part two Thefts of U.S. technology boost China's weaponryBy Bill GertzTHE WASHINGTON TIMESPublished June 27, 2005 -------------------------------------------------------------------------------- Second of two parts. China is stepping up its overt and covert efforts to gather intelligence and technology in the United States, and the activities have boosted Beijing's plans to rapidly produce advanced-weapons systems. "I think you see it where something that would normally take 10 years to develop takes them two or three," said David Szady, chief of FBI counterintelligence operations. He said the Chinese are prolific collectors of secrets and military-related information. "What we're finding is that [the spying is]much more focused in certain areas than we ever thought, such as command and control and things of that sort," Mr. Szady said. "In the military area, the rapid development of their 'blue-water' navy -- like the Aegis weapons systems -- in no small part is probably due to some of the research and development they were able to get from the United States," he said. The danger of Chinese technology acquisition is that if the United States were called on to fight a war with China over the Republic of China (Taiwan), U.S. forces could find themselves battling a U.S.-equipped enemy. "I would hate for my grandson to be killed with U.S. technology" in a war over Taiwan, senior FBI counterintelligence official Tim Bereznay told a conference earlier this year. The Chinese intelligence services use a variety of methods to spy, including traditional intelligence operations targeting U.S. government agencies and defense contractors. Additionally, the Chinese use hundreds of thousands of Chinese visitors, students and other nonprofessional spies to gather valuable data, most of it considered "open source," or unclassified information. "What keeps us up late at night is the asymmetrical, unofficial presence," Mr. Szady said. "The official presence, too. I don't want to minimize that at all in what they are doing." China's spies use as many as 3,200 front companies -- many run by groups linked to the Chinese military -- that are set up to covertly obtain information, equipment and technology, U.S. officials say. Recent examples include front businesses in Milwaukee; Trenton, N.J.; and Palo Alto, Calif., Mr. Szady said. In other cases, China has dispatched students, short-term visitors, businesspeople and scientific delegations with the objective of stealing technology and other secrets. The Chinese "are very good at being where the information is," Mr. Szady said. "If you build a submarine, no one is going to steal a submarine. But what they are looking for are the systems or materials or the designs or the batteries or the air conditioning or the things that make that thing tick," he said. "That's what they are very good at collecting, going after both the private sector, the industrial complexes, as well as the colleges and universities in collecting scientific developments that they need." One recent case involved two Chinese students at the University of Pennsylvania who were found to be gathering nuclear submarine secrets and passing them to their father in China, a senior military officer involved in that country's submarine program. Bit by bit To counter such incidents, the FBI has been beefing up its counterintelligence operations in the past three years and has special sections in all 56 field offices across the country for counterspying. But the problem of Chinese spying is daunting. "It's pervasive," Mr. Szady said. "It's a massive presence, 150,000 students, 300,000 delegations in the New York area. That's not counting the rest of the United States, probably 700,000 visitors a year. They're very good at exchanges and business deals, and they're persistent." Chinese intelligence and business spies will go after a certain technology, and they eventually get what they want, even after being thwarted, he said. Paul D. Moore, a former FBI intelligence specialist on China, said the Chinese use a variety of methods to get small pieces of information through numerous collectors, mostly from open, public sources. The three main Chinese government units that run intelligence operations are the Ministry of State Security, the military intelligence department of the People's Liberation Army and a small group known as the Liaison Office of the General Political Department of the Chinese army, said Mr. Moore, now with the private Centre for Counterintelligence Studies. China gleans most of its important information not from spies but from unwitting American visitors to China -- from both the U.S. government and the private sector -- who are "serially indiscreet" in disclosing information sought by Beijing, Mr. Moore said in a recent speech. In the past several years, U.S. nuclear laboratory scientists were fooled into providing Chinese scientists with important weapons information during discussions in China through a process of information elicitation -- asking questions and seeking help with physics "problems" that the Chinese are trying to solve, he said. "The model that China has for its intelligence, in general, is to collect a small amount of information from a large amount of people," Mr. Moore said during a conference of security specialists held by the National Security Institute, a Massachusetts-based consulting firm. In the learning phase Mr. Szady acknowledges that the FBI is still "figuring out" the methods used by the Chinese to acquire intelligence and technology from the United States. Since 1985, there have been only six major intelligence defectors from China's spy services, and information about Chinese activities and methods is limited, U.S. officials said. Recent Chinese spy cases were mired in controversy. The case against Katrina Leung, a Los Angeles-based FBI informant who the FBI thinks was a spy for Beijing, ended in the dismissal of charges of taking classified documents from her FBI handler. The Justice Department is appealing the case. The case against Los Alamos National Laboratory scientist Wen Ho Lee, who was suspected of supplying classified nuclear-weapons data to China, ended with Mr. Lee pleading guilty to only one count among the 59 filed. The FBI has been unable to find out who in the U.S. government supplied China with secrets on every deployed nuclear weapon in the U.S. arsenal, including the W-88, the small warhead used on U.S. submarine-launched nuclear missiles. "I think the problem is huge, and it's something that I think we're just getting our arms around," Mr. Szady said of Chinese spying. "It's been there, and what we're doing is more or less discovering it or figuring it out at this point." Mr. Bereznay said recently that Chinese intelligence activities are a major worry. FBI counterintelligence against the Chinese "is our main priority," he said. In some cases, so-called political correctness can interfere with FBI counterspying. For example, Chinese-American scientists at U.S. weapons laboratories have accused the FBI of racial profiling. But Mr. Szady said that is not the case. China uses ethnic Chinese-Americans as a base from which to recruit agents, he said. "They don't consider anyone to be American-Chinese," Mr. Szady said. "They're all considered overseas Chinese." So the answer he gives to those who accuse the FBI of racial profiling is: "We're not profiling you. The Chinese are, and they're very good at doing that." Pushing an agenda China's government also uses influence operations designed to advance pro-Chinese policies in the United States and to prevent the U.S. government from taking tough action or adopting policies against Beijing's interests, FBI officials said. Rudy Guerin, a senior FBI counterintelligence official in charge of China affairs, said the Chinese aggressively exploit their connections to U.S. corporations doing business in China. "They go straight to the companies themselves," he said. Many U.S. firms doing business in China, including such giants as Coca-Cola, Boeing and General Motors, use their lobbyists on behalf of Beijing. "We see the Chinese going to these companies to ask them to lobby on their behalf on certain issues," Mr. Guerin said, "whether it's most-favored-nation trade status, [World Health Organization], Falun Gong or other matters." The Chinese government also appeals directly to members of Congress and congressional staff. U.S. officials revealed that China's embassy in Washington has expanded a special section in charge of running influence operations, primarily targeting Congress. The operation, which includes 26 political officers, is led by Su Ge, a Chinese government official. The office frequently sends out e-mail to selected members or staff on Capitol Hill, agitating for or against several issues, often related to Taiwan affairs. Nu Qingbao, one of Mr. Su's deputies, has sent several e-mails to select members and staff warning Congress not to support Taiwan. The e-mails have angered Republicans who view the influence operations as communist meddling. "The Chinese, like every other intelligence agency or any other government, are very much engaged in trying to influence, both covertly and overtly," Mr. Szady said. Taking technology The real danger to the United States is the loss of the high-technology edge, which can impair U.S. competitiveness but more importantly can boost China's military. Immigration and Customs Enforcement (ICE), a part of the Department of Homeland Security, is concerned because the number of high-profile cases of illegal Chinese technology acquisition is growing. "We see a lot of activity involving China, and I think it would be fair to say the trend is toward an increase," said Robert A. Schoch, deputy assistant director in ICE's national security investigations division. Mr. Schoch said that one recent case of a South Korean businessman who sought to sell advanced night-vision equipment to China highlights the problem. "We have an awesome responsibility to protect this sensitive technology," he said. "That gives the military such an advantage." ICE agents are trying hard to stop illegal exports to China and several other states, including Iran and Syria, not just by halting individual exports but by shutting down networks of illegal exporters, Mr. Schoch said. Another concern is that China is a known arms proliferator, so weapons and related technology that are smuggled there can be sent to other states of concern. "Yes, some of this stuff may go to China, but then it could be diverted to other countries," Mr. Schoch said. "And that is the secondary proliferation. Who knows where it may end up." As with China's military buildup, China's drive for advanced technology with military applications has been underestimated by the U.S. intelligence community. A report prepared for the congressional U.S.-China Economic and Security Review Commission found predictions that China was unable to advance technologically were false. In fact, the report by former Pentagon official Michael Pillsbury highlights 16 key advances in Chinese technology -- all with military implications -- in the past six months alone. The failure to gauge China's development is part of the bias within the U.S. government that calls for playing down the threat from the growing power of China, both militarily and technologically, Mr. Pillsbury stated. "Predictions a decade ago of slow Chinese [science and technology] progress have now proved to be false," the report stated. Unlike the United States, China does not distinguish between civilian and military development. The same factories in China that make refrigerators also are used to make long-range ballistic missiles. At a time when U.S. counterintelligence agencies are facing an array of foreign spies, the Chinese are considered the most effective at stealing secrets and know-how. "I think the Chinese have figured it out, as far as being able to collect and advance their political, economic and military interests by theft or whatever you want to call it," Mr. Szady said. "They are way ahead of what the Russians have ever done."
Matt L. Posted June 27, 2005 Posted June 27, 2005 I don't know, Jeff. There's cetainly a hint of "yellow peril" about that article that makes it suspect IMHO. There are no facts one could double check - it's all hearsay and implication. The article makes it sound like we're headed toward PTO part two with the PLN playing the part of Japan's imperial navy. Matt
Jeff Posted June 28, 2005 Posted June 28, 2005 You may be right, Gertz gets some good scoops but there may be a "scratch my back I'll scratch yours" aspect to it. Figured it would stir up some activity here but I guess not.
Ken Estes Posted June 28, 2005 Posted June 28, 2005 You may be right, Gertz gets some good scoops but there may be a "scratch my back I'll scratch yours" aspect to it. Figured it would stir up some activity here but I guess not.188868[/snapback]Maybe the drum needs a tuning.
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