G-2/WC/BC

Trade war

For the first time since February 2016, Chinese factory activity declined in December 2018, and that, alone, was enough to cause stock markets worldwide to continue their sharp declines because the factory slowdown was more evidence that the entire Chinese economy was hitting a rough patch. It was also confirmed that Chinese GDP growth in 2018 was 6.5% and many economic indicators continue declining, while those in the United States are growing. This is a reminder that the current trade war with the United States favors the Americans for many reasons that Chinese leaders cannot ignore.

Bad decisions

China has hit economic slumps since the 1990s, usually the result of economic problems in the West; however, the cause now is the bad decisions that the Chinese leadership made in the first place and those are catching up with them. Years of tolerating corruption and ignoring the growth of bad loans means that borrowing more money to give the economy a boost won’t work. A sharper decline in Chinese economic activity would have worldwide impact because China is a major trading nation and a major customer for raw materials, semi-finished goods and some high tech items.

Hiding the truth

China continues its mid-2018 policy of monitoring their media for any errors or exaggerations when reporting economic data, and punishment is prompt and harsh for any editors who screw up — accidentally or on purpose. In other words, their economy is not doing well and the government wants to prevent a financial panic, especially in light of the trade war with the U.S. and sanctions against Iran. This media manipulation can moderate the widespread unease about the economy in China, but it won’t eliminate it.

Diverting attention

China’s government can slow the spread of bad news, but it can’t stop it, so they come up with new distractions to divert public attention. The mess in North Korea helps, and threatening Taiwan or the U.S. Navy is always good for a few days of distraction, but some things are more difficult to hide — like the fact that China is not well liked by its neighbors, something noted by the growing number of Chinese who travel abroad, where China is seen as a bully and a threat, both economically and militarily.

Disillusioned

The Chinese were surprised at the U.S. trade war, as they believed the West, especially the U.S., wouldn’t risk such a move. Unfortunately for China, President Trump is a career businessman and an expert at using mass media and negotiating solutions where no one else could. Most Chinese noted this change and became even more disillusioned with their government, which is still seen as corrupt and self-serving. The newly acquired Chinese prosperity is rather fragile compared to the Western models. China’s government prefers to play down this but, at the moment, most Chinese are well aware of the fragility and terrified where it may lead.

Second-rate superpower

Russia likes to be seen as an ally of China, but the reality is that Russia is no longer a superpower and provides a military threat only because it has spent a lot of its shrinking defense budget on maintaining its nuclear weapons and ballistic missiles that deliver them. Actually, Russia still maintains a larger force of nuclear-armed missiles than China, but that is largely irrelevant. Economic growth and GDP determine who has the most power. The Russian GDP is stagnant and the population continues to shrink because more people are leaving and not enough children are being born.

China lays claim

In the aftermath of the United States’ November Freedom of Navigation Operation (FONOP) in the South China Sea, the fifth one in 2018, China has moved more radars, electronic warfare equipment and guided missiles to the Paracel Islands. China also declared, once more, that the Paracels were part of China and China would control its territorial waters. That FONOP was near several of the Chinese-occupied islands in the Paracels, which had long belonged to and been occupied by the Vietnamese.

Exerting control

There are two ways China can enforce its sovereignty exert control over its territorial waters: the traditional response is to attack intruders with gunfire or missiles, or their preferred method of swarming around the intruder with commercial, coast guard and even navy warships and combat aircraft. China doesn’t want a war with the U.S., mainly because of the economic risks, which could lead to more unrest inside China. Interference with seaborne trade and trading relationships, in general, would disrupt the Chinese economy and threaten the Chinese Communist Party control. China has demonstrated a willingness to do everything — short of war — to claim victim status.

Convicted of corruption

Ma Jian, a former Chinese senior official in the secret police, was convicted of corruption and sentenced to life in prison. This was considered a big deal because a Chinese senior secret police commander is rarely treated like this, as most of those prosecuted for corruption are lower ranking officials. Then, again, it has been noted that nearly all of the senior officials prosecuted were considered hostile to China’s leader-for-life, Xi Jingping.

Cost of war

The costs of a war with Taiwan would be substantial, even if it didn’t trigger a wider war with the United States. In response to China’s threats, Taiwan suggested that China try democracy as a solution for their growing political and economic problems that the mainland Chinese are facing. That sounds attractive to many Chinese, who note that it has worked in Singapore, as well as Taiwan. South Korea and Japan are also good examples because those two nations have cultures largely derived from Chinese practices, but the Chinese leadership is not interested.

Support waning

Another sign in Thailand that pro-China attitudes are weakening: a Thai court acquitted a Chinese couple of visa violations and allowed them to stay. China requested that the couple be sent back to China to be punished for their pro-reform activities and, in the past, the military government had promptly carried out Chinese requests for the return of dissidents. Most Thais, however, even those in the military, were never very enthusiastic about becoming too dependent on Chinese good will.

Discretion advised

China continues to tolerate a certain amount of North Korean smuggling and financial misbehavior, but North Korea must be discreet because China is officially backing, if not actually enforcing, most of the economic sanctions on North Korea. Since a crackdown on Chinese banks a few years ago, North Korea has moved most of its illegal finance operations out of China.

Bounty on his head

In late 2018 the U.S. offered a $3 million reward for the capture of Hossein Ahmad Larijani who, from 2007 through 2008, organized the illegal procurement and shipment to Iran of 6,000 American-made radio frequency modules. Larijani recruited four Singaporean men to assist him in the smuggling operation and, in 2011, they were arrested in Singapore while Larijani fled back to Iran, where he currently lives. Larijani is believed to have traveled to Turkey, Hong Kong and China to arrange smuggling efforts for Iran.

Spyware

China’s Huawei electronics firm has close ties with the Chinese military and government intel agencies, so many Western nations are refusing to use any Huawei equipment in their networks because of the potential for hidden features that may facilitate Chinese espionage or military operations in general.

More indictments

The U.S. indicted two Chinese hackers working for the Chinese government to carry out an ongoing campaign to get into U.S. military and defense industry networks and steal data. The two men were key operatives in a hacking group known as APT10, which has been active since 2006. The indictments mean that the U.S. has enough evidence against the two men to have them arrested, if they ever enter a part of the world where an American arrest warrant will be honored. With these indictments the U.S. is formally accusing China of Internet-based espionage against the United States.

For self defense

Japan has ordered another 99 U.S. F-35 stealth fighters and as many as 40 of these are the F-35B vertical, takeoff model that Japan wants to test from its two helicopter carriers. Japan has committed itself to spend record amounts on defense over the next five years and all in order to defend itself from North Korean or Chinese attacks or threats.

Show of power

China’s air force resumed their combat patrols of bombers and fighters that circumnavigate Taiwan, mainly as a show of power, which they last did in mid-2018. As part of their circumnavigation operation, two Chinese warships moved within the range of Taiwanese radars.

Corruption punished

The main concerns inside Iran are the economy and how the government has mismanaged it, and, in the last year, there has been a growing number of anti-government protests. Most are by Iranians suffering economically and the increasingly obvious government corruption. The government response has been to set up a special anti-corruption court and trying obvious cases of corruption, but only non-government corruption. Despite that, the anti-corruption court is finding and prosecuting some major offenders — over 30 have been sentenced to long prison terms and, so far, at least three have been executed.

Under Chinese control

China sent engineers and technicians to Venezuela in order to assist PDVSA, the state-owned oil company. Operations may eventually give China control of Venezuela’s main revenue producer, and thus far Chinese-controlled PDVSA operations account for about 10% of Venezuelan production. The Chinese doubled production in 2018 in the areas they control and are hoping to expand that; however, the Venezuelan government may not be able to allow that because PDVSA has become a refuge for government supporters who are more interested in stealing oil than improving production.

Exporting illegally

A Canadian court granted bail to Meng Wanzhou, who was arrested at the request of the United States. Wanzhou, the daughter of a senior Chinese CCP official and a senior executive of the Chinese electronics firm Huawei, was arrested while she was at a Canadian airport transferring flights. The U.S. has been investigating Huawei for illegally exporting smartphones to Iran and engaging in bank fraud to enable Iran to facilitate foreign trade despite sanctions against it. Wanzhou will be extradited to the U.S. to be prosecuted if she is unable to get a Canadian court to rule against the extradition.

Tightening the noose

The Chinese government expects to have its Big Brother monitoring and Social Credit Rating (SCR) systems operating nationwide by 2020, but already local officials are finding SCR a useful tool in many different ways. For example, factory workers in Xinjiang who refuse to accept harsh working conditions and no pay increases can be assigned a low SCR and then are told they must either improve their attitude or go to a reeducation camp if they refuse to behave as ordered. Many Chinese have no problem with SCR and see it as an opportunity.

Law enacted

The U.S. enacted a law that identifies and bans Chinese officials from entering the U.S. if those same officials are the ones who prevent Americans from entering Tibet. This is a largely a symbolic act, “diplomatic reciprocity,” that has been around for a while, but China always felt it didn’t apply to Tibet because China said it didn’t.

Idle threats

China began the New Year by threatening Taiwan with invasion if it doesn’t accept Chinese rule. China had offered Hong Kong a similar deal when it rejoined China after the British lease expired in 1997. The offer to Hong Kong succeeded because few Chinese in British Hong Kong ever considered Hong Kong an independent country. The offer to Taiwan did not go as planned because 70% of the Taiwanese consider Taiwan to be independent. China doesn’t want violence, at least not when threats and economic warfare have worked pretty well so far.

Evading sanctions

After a four-year field study by a British group, there are allegations that several of South Sudan’s neighbors have helped evade arms embargoes and allowed deliveries of weapons to both the South Sudan government and the rebels.

Flaunting it

In December, a recent photo was posted online of Ahmad Khomeini, great-grandson of Ayatollah Khomeini, founder of the Iranian religious dictatorship, wearing expensive Western clothes and in the company of a female polo player. Ahmad Khomeini insists the photo was stolen from a friend and uploaded to embarrass his father, Hassan Khomeini, one of 15 grandsons of the Ayatollah. Ahmad Khomeini is now being called a luxury agazadeh, a derisive term for members of senior cleric families. This corruption is no secret, but wealthy clerical families make an effort to not flaunt it, especially when the economy is doing poorly and most Iranians are suffering.

Not a Merry Christmas

It was not a Merry Christmas in Sudan, where the official government news agency reported that President Bashir accused anti-government protesters of being “traitors and foreign agents” who are committing “sabotage” on behalf of Sudan’s enemies.

Unfair and unfriendly

South Korea has increased its defense budget and plans to spend $43 billion on its military in 2019. While North Korea complains about how unfair and unfriendly these increases are, they are a direct result of the increased threat from North Korea. The annual South Korean defense budget is more than a third larger than the annual GDP of North Korea.

No police powers

The Chinese have no police powers in Venezuela, but they do have a lot of financial clout, which they believe will prevail in the long term. China feels that a more effective government will eventually emerge, allowing businesses to operate efficiently and profitably. China is positioning itself as a friend of Venezuela and is working on many development projects there, having had plenty of experience in lawless regions. The situation in Venezuela is familiar to the Chinese and they expect to come out of this with strong economic ties to the post-chaos Venezuela.

Antique air show

The Iranian government admits that only about a third of their defense budget goes to improving Iranian defenses; the rest goes to secret projects, like supporting wars in Syria and Yemen as well as forces in Iraq and Lebanon. It is obvious that the Iranian military gets little money because their navy is practically non-existent, and their air force is an antique show. Despite all the smuggling and improvisation, Iran is stuck with the oldest, least-capable fleet of warplanes in the Middle East.

Five-year mark

December 2018 marked five years of civil war in South Sudan, where an estimated 400,000 people have died in the conflict, mostly from disease, hunger or exposure. The UN calls South Sudan Africa’s largest refugee crisis.

The simple way

The lifting of most sanctions against Iran in 2015 did not change the situation much and, in 2018, the U.S. revived their sanctions because there was more evidence that Iran was cheating on the 2015 agreement. No wonder Iran has put so much effort into building ballistic missiles and, eventually, nuclear weapons. In many ways, building these weapons is simpler than buying and maintaining modern combat aircraft.

Manufacturing switch

North Korean media took pictures in July of their leader, Kim Jong Un, visiting a shipyard and an engine manufacturing plant on the east coast, but what was actually going on took a while longer to leak out. Kim had ordered the engine plant to switch from making replacement engines for their 200 largely worn 30- to 40-year-old Russian-designed torpedo boats and gear up to produce 10 engines a month for what have been called Very Slender Vessels (VSV) because they depend on a “surface effect” design to achieve high speed.

Happenings in NK

North Korea’s Kim Jong Un communicates with his people largely through videos of his visits to factories, farms and other facilities — which are often revealing— and through written or verbal reports of what he said. Commercial satellite photos and illegally-obtained tourist cell phone pictures of ships provide information on otherwise obscure aspects of the North Korean military and these sources have provided a steady flow of information about the sparse, but steady, North Korean effort to build new warships since their economic collapse in the 1990s.

Protected from wrath

The most flagrant and hated corruption is found among the families of Iran’s senior clergy and the Iranian Revolutionary Guard Corps (IRGC), which protects the ruling clerics from the wrath of the Iranian people.

Secondary explosions

Commercial satellite photos show that Iran’s Fajr-5 rocket storage site outside Damascus, Syria, was completely destroyed by an Israeli airstrike on 25 December. The complete destruction was made possible by the fact that there were a lot of rockets at the site, causing secondary explosions and thus, increasing the destruction. These secondary explosions indicate that the target contained a lot of explosive materials.

Bribery

The U.S. Department of Defense found that it had become common for Afghan officials to be bribed by Iran to support Iranian interests. Most of the bribes were in support of Iranian economic interests, but there were also bribes regarding support for the Taliban — not to overthrow the Afghan government — but to help in the fight against the Islamic State and protection of the Afghan minority.

Iran’s unemployment

The unemployment rates in Iran vary across the country, with some areas suffering from over 50% unemployment and that news gets around. In the last year the cost of basic goods has gone up by about 25%, while average incomes have declined. The growing number of poor and economically struggling Iranians now includes a lot more of the religious dictatorship’s core supporters.

Return the monarchy

Many in Iran are calling for a return of the monarchy, partly because nothing irritates the religious dictatorship more than that. The current generation has no actual experience living under the monarchy, but it is clear from photos, videos and elders that life was better under the monarchy, even though there was still corruption, favoritism and secret police. In short, the Shah was never as crazy as the current religious dictatorship and it is telling that Iranians overseas are organizing to support another revolution and many of the exiled aristocracy are involved, including the children of the last Shah.

What goes around

The Pakistani man responsible for the attack on the Chinese consulate in Pakistan last month was killed in an explosion in southern Afghanistan. Kandahar province is on the border with the Pakistan province of Baluchistan where most of the Chinese economic activity in Pakistan is taking place.

Many news items courtesy of strategypage.com & James Dunnigan. All material ©2019, StrategyWorld, Inc.