July 14, 2012: China has purchased (via bribes) more economic and political control in North Korea, having found that the fractious government was increasingly unreliable when it came to negotiating anything. The flow of refugees out of North Korea is causing more economic (cheap illegal labor) and social (crime) problems on the Chinese side of the border. The Chinese have decided that Korea will never be united (under democratic South Korea) and that when there is a government collapse in the north China will move in and take charge. In that case North Korea will remain seemingly independent but under stricter Chinese control. Right now, China has to threaten, bribe, and negotiate with several government factions in North Korea to get anything done, and sometimes all this doesn't work because of the infighting, and fear, among senior North Korean officials. Overall, however, China considers North Korea a minor problem, with the potential to escalate to something nastier if South Korea tries to thwart Chinese domination. If the Americans back this, things could get much more serious. Chinese diplomats have told the Americans and South Koreans to back off. The Americans seem to understand, the South Koreans, not so much. Despite soothing words from the Americans, who have, for over half a century, done a lot to retrain the South Koreans, the Chinese are concerned about the new U.S. strategy of shifting most of their armed forces to the Pacific. China is also troubled with growing military cooperation between South Korea and Japan. Both these nations object to Chinese control of North Korea.

Another potential flashpoint, the South China Sea, is becoming more unsettled as China's neighbors refuse to accept Chinese claims to the entire area. Japan has been sending small warships to patrol contested parts of the disputed Diaoyu (in Chinese) Islands (Senkaku in Japanese and Tiaoyutai in Taiwan). The islands are actually islets, which are 167 kilometers northeast of Taiwan and 426 kilometers southeast of Japan's Okinawa and have a total area of 6.3 square kilometers. Taiwan also claims the islands, which were discovered by Chinese fishermen in the 16th century and taken over by Japan in 1879. They are valuable now because of the 380 kilometer economic zone nations can claim in their coastal waters. This includes fishing and possible underwater oil and gas fields. A conservative Japanese political group built the lighthouse in 1986, to further claims of Japanese ownership. Currently, the Japanese have the most powerful naval forces in the region and are backed up by a mutual defense treaty with the United States. China was long dissuaded by that but no more. China is no longer backing off on its claims, and neither is Japan. So these confrontations are becoming more serious.

Despite these clashes (usually between small, lightly armed, patrol boats), Japan and China are cooperating quite closely, together with India, in using their joint naval forces on the anti-piracy patrol off Somalia. Intelligence experts see this as a clever way for China to gain some practical experience with how the Japanese and Indian navies operate.

Despite such cooperation, China's growing military power has made the immediate neighbors (India, Vietnam, Japan, Taiwan, South Korea) nervous. This has caused a regional arms race. Last year, for the first time in centuries, East Asia spent more on defense than Western Europe. China is increasing its military budget 11.2 percent this year, compared to a 12.7 percent bump last year and 7.5 percent the year before. This means that the official defense budget is $105 billion. Like other communist nations, the Chinese keep a lot of military stuff outside the defense budget, so their actual defense spending is closer to $165 billion. Chinese defense spending has more than doubled in the last decade. This has triggered an arms race with its neighbors. Russia just announced a new military upgrade program that would increase defense spending by a third and devote over 700 billion dollars in the next decade to buying new equipment. Japan, already possessing the most modern armed forces in the region, is increasing spending to maintain their qualitative edge. A decade ago China and Japan spent about the same on defense, but now China spends more than three times as much. Even India is alarmed. Spending only a quarter of what China does, the Indian generals and admirals are demanding more money to cope. India and China are actually devoting a lot of their additional spending to just bringing their troops up to date. Both nations have lots of gear that was new in the 1960s and 1970s. They don't expect to be as up-to-date as the U.S., which spends over $700 billion a year, but there's plenty of newer, much better, and often quite inexpensive equipment to be had.

The U.S. is pressuring China to crack down on Iranian smugglers who ship American goods that cannot be exported to Iran, via China. The Chinese explain that they do not have good control of all the stuff coming in and out of their booming economy. Smuggling has long been a major problem for Chinese rulers.

For the last few months the Chinese leadership has warned of an economic slowdown. This came as no surprise to many Chinese, who could see the evidence at street level. But the way the government has handled this has revealed more corruption. In this case, official government economic statistics appear to have been faked in the past. This was long suspected, but the government admission that there is an economic contraction is flushing out a lot of the lies, to where everyone can see them. Government controlled banks have long made lots of bad loans and tried to hide them. This game is just about up as well. China is buying less internationally and hustling to increase exports. But the real engine of the Chinese economy is consumer spending and the average consumer is getting nervous and less eager to splurge. This may signal a halt in economic growth and a period of reorganization. This will mean less money for the military for a few years and perhaps less aggressive foreign policy.

Bad things tend to come in bunches. In addition to the economic woes, the Chinese leadership is confronted with growing public outcry against corruption and pollution. The government has found it prudent to back off and offer concessions in a growing number of these cases. The fear of widespread rebellion, triggered by local grievances, is an old theme in Chinese history and all Chinese leaders know their history.

July 12, 2012:  Chinese prosecutors have been publicly ordered to crack down on the manufacture and use of fake military ID. Last year China increased the penalties for civilians caught using military uniforms or forged military documents (including license plates). Penalties were increased to ten years in jail for this sort of thing. Previous penalties (often aided by a bribe or two) amounted to a slap on the wrist. The problem, especially the use of forged license plates, is believed to cost the government over $150 million a year in lost taxes and fees. It was six years ago that China first made a major effort to deal with this problem (gangsters pretending to be soldiers). In China the military is something of a state-within-a-state. Civil officials, including police, are discouraged from interfering with military personnel, unless they are very obviously doing something illegal. This extends to off-duty military personnel, driving military vehicles. Actually, any vehicle with military license plates qualifies. Several gangs discovered that stolen, or counterfeit, military license plates conferred a bit of immunity on whoever was driving a vehicle with such plates. Eventually, the police caught on. So, back in 2006, the government mobilized 20,000 personnel from the army and police to man checkpoints and check for counterfeit or stolen military plates. In two months this effort seized over a thousand stolen or counterfeit plates. In addition, 775 vehicles were seized and 123 people were arrested.

The gangs often supplied the names of the officers who owned the stolen plates, to better enable the new owners to get past military or police security while using the stolen plates. As a result of all this, new procedures were enacted, to make it more difficult to use counterfeit or stolen military plates. The gangsters and corrupt officers found ways around this and the fakes continued to flourish. Despite last year's new laws and orders to "crack down," the use of fake military ID problem continues. The fact that public exhortations to enforce the old laws, and the new punishments, was ignored, tells you something about the resilience of corruption in China. This is another reminder to the Chinese people that their government is not very good at fighting corruption. The average Chinese gets reminded of this in a very personal way on a regular basis.

In the Spratly Islands, a Chinese Navy frigate ran aground while on patrol. The Spratly Islands are basically a collection of atolls, shoals, and islets, plus a lot of land that lurks just below the water (depending on whether the tide is high or low). It's a tricky area for larger ships, like frigates, to navigate.

In Hong Kong the development minister, after only two weeks on the job, was forced to resign in the face of corruption charges. Corruption was expected to get worse when Britain left Hong Kong over a decade ago but these charges trace back to misdeeds from the 1980s. Hong Kong officials have become more corrupt since China assumed control but the city always had problems with criminal behavior among government officials.

July 11, 2012: In Taiwan a retired army lieutenant colonel was arrested and charged with spying for China.