February 6, 2018: Today the Philippines changed its policy on allowing foreign research vessels to study the Benham Rise, 250 kilometers off the east coast of the Philippines. In 2012 the UN agreed that the resource rich Benham Rise was indeed part of the Philippines coastal waters and the name was then changed to the Philippines Rise. This is basically an underwater volcano that did not turn into an island. It is a large (250 kilometers square) plateau that is in an area where most of the water is 5,000 meters deep. But the rise is mostly 3,000 meters high and a “peak” rises out of that plateau and reaches to within 50 meters of the surface. The rise is a rich fishing area but also may have underwater oil and gas deposits. China has never made a claim on the Benham Rise but that could change if the payoff were large enough. China had asked permission to send a research ship to study the area and at first the Philippines agreed. But the public reaction was hostile to that, given the Chinese aggression off the west coast in the South China Sea. So the government withdrew that permission and banned any foreign research vessels from studying the Philippines Rise unless they received specific permission. Foreign fishing vessels are banned from the Philippines Rise as well.

At the same time the Philippines repeated that war was not an option in the South China Sea where the Chinese have declared the area an integral part of China and is trying to force foreign ships, especially warships, to ask permission before passing through what had always been considered international waters. Meanwhile China continues to dredge up sand at reefs and created artificial islands which are turned into military bases. China says the new artificial islands will have commercial uses (tourism, recreation).

The U.S. compiled and recently released a report on Chinese activities in the South China Sea during 2017. The numerous detailed aerial and satellite photos showed that that China had continued to expand its artificial islands and installed numerous military facilities on six of these islands. China had promised the Philippines it would not expand these islands and that played a role in the Philippines backing off on its resistance to the Chinese territorial claims. But now China is openly discussing its plans to expand its military presence in the South China Sea and proudly displaying progress on state controlled media. This includes plans to install more sensors throughout the South China Sea and put ten surveillance satellites into orbit so that the South China Sea is covered 24/7.

In late 2017 China appeared to have succeeded in buying cooperation from the Philippines. The Filipino government was willing to accept all the legal gifts (aid, investment, loans) China offered in return for the Philippines not resisting Chinese claims in the South China Sea. President Duterte pointed out earlier in 2017 that China threatened war if the Philippines went ahead with plans to drill for oil in offshore areas that international law recognizes as Filipino but that China claims actually belongs to them. Duterte openly criticizes other nations for not confronting China and sees no point in the Philippines trying to take on China by itself or at least not without a massive amount of support. All the South China Sea nations facing territorial losses because of Chinese claims have backed down to one degree or another. Duterte points out that even the United States is unwilling to go up against China and the Americans made it clear that the main threat to the U.S. from the region right now was North Korea, not China.

Meanwhile the Chinese are openly moving more weapons to bases in the South China Sea as well as their main naval base in southern China (Hainan Island). Chinese officials admit that they are determined to get their way in the South China Sea but it is also the case that China prefers to buy what it wants rather than start a war over it. That is an ancient Chinese tradition that is currently giving a lot of popular and official support inside China. Effective Filipino resistance to these Chinese plans is not considered a possibility. The Chinese see the Philippines as neutralized and many Filipinos are not happy with that.

Fleet Dreams

Despite the recent (since the late 1990s) progress in warship design and construction, China had first established itself as a major builder of commercial shipping. There is no such apprenticeship (commercial shipping to military) when it comes to aviation and developing w0rld class warplanes is proving a much more troublesome effort. Same with nuclear submarines and many missile technologies. This has consequences. The new J-20 stealth fighter officially entered service in early 2017 but production is stalled because of problems with the engines and the stealth tech. Nuclear subs are in a similar fix with progress blocked by problems developing power plants, electronics and mechanical systems that can match Western tech.

Chinese warship building also got boost when worldwide demand for merchant shipping declined about a decade ago and the government decided to help keep some of the major shipyards in business (especially the ones that were most competitive with world leader South Korea). The navy leaders made the most of this situation and expanded the amphibious shipping force as well as building more warships (mainly smaller ones that require fewer specialized construction techniques) and that produced a fleet better able to seize and hold the South China Sea islands and present a more serious invasion threat for Taiwan.) The shipyards are also building carriers and large destroyers but the main thing is they are building a lot of stuff.

China has been building modern warships at a record rate, something rarely seen in peacetime. China has been building world class warships faster and cheaper than anyone else. There is nothing magical about this, the Chinese simply were practical and ruthless in catching up. Practical in the sense that they managed to merge a market economy with a communist police state. That rather unnatural act may yet come apart but since the 1980s China has been learning from what Russia did wrong during the Cold War and putting their more effective methods into practice.

First the Chinese allowed Western firms in and created a situation where everyone made money. More importantly China was able to import Western manufacturing techniques (which Japan, South Korea and other Asian nations had already done with great success) and by the turn of the century were competitive in many manufacturing sectors. The government provided plentiful financing to key industries (ship building, electronics, machinery) and supplied them with lots of stolen (from Russia and the West) tech. The Russian tech was necessary because it enabled Chinese weapons manufacturers to proceed more smoothly from nothing to building Western quality weapons. Russia was never able to do this while the Soviet Union existed because the Soviets clung to their command economy and the lack of economic freedom and competition meant Russia could never match Western standards of manufacturing quality. China eventually could, a process which is still under way in areas like jet engine manufacturing and nuclear submarines.

In most other categories China can be competitive, along with cheaper and faster. The Chinese are catching up by being practical and persistent. They accept that it will take longer to maser certain techs but have been able to go through that process making money with “good enough” weapons that are cheaper and appeal to a larger market than the world class Western stuff. A lot of this Chinese military technology performs well enough to keep customers coming back. China keeps demonstrating what it can do. For example, China’s second aircraft carrier (CV-17 Shandong) was launched (in the water) by April 2017. That was 25 months after construction began. At the end of 2017 CV-17 was at dockside being prepared for sea trials, which will apparently begin in early 2018 and have CV-17 in service by 2020. That’s less than half the time a Western nation would require and at half the price. It’s not just aircraft carriers. China has demonstrated the same efficiency with other ship classes (destroyers, frigates, amphibious, coastal patrol, mine warfare, sustainment, floating docks and so on).

China has not revealed how many carriers is plans to eventually build. But based on what is being said in Chinese media and around the shipyard the performance of CV-17 will play a large role. CV-17 is expected to undergo one or two years of sea trials before entering service. But “the plan” is apparently to build two more similar carriers (CV-18 and 19) which will lose the ski jump deck and instead adopt a catapult. These two will be a bit larger than CV-17 and the first one is already under construction as a Type 002 ship and is expected to be in the water by 2020 and in service by 2024. One thing that might delay the Type 002 is the decision on which catapult system (steam or electric) to use. The U.S. Navy has had problems getting its EMALS (electromagnetic aircraft launch system) to work effectively and the Chinese may be waiting to see how that works out before making their decision. The Type 002 will have a steam propulsion system but one that will produce a lot more electricity (for laser weapons and catapult). After the two catapult equipped carriers are evaluated it is believed that two nuclear powered carriers are planned (CVN-20 and 21). These will be similar to the American Nimitz class CVNs.

Meanwhile China is building more (over six) electronic intelligence collection ships as well as even more large LPD amphibious ships for its expanding (to eight brigades) marine infantry force.

Pollution Kills GDP

Pollution is having a more obvious impact on the economy and local politics. Mandatory shutdowns of factories and other operations that are major sources of seasonal pollution are more widespread and frequent and becoming an obvious drag on the economy. This is one reason the annual GDP growth rate is slowing (to about half the ten percent a year that was common since the 1980s). The growing air pollution in major cities, particularly the capital (where most senior government officials live along with the majority of foreign diplomats and journalists) cannot be ignored and over the last five years the government has enacted and enforced a growing number of restrictions on pollution producers. Government efforts to fight growing air pollution by replacing coal fueled power plants with nuclear ones ran into problems with inadequate infrastructure, poorly designed reactors and public resistance. Since 2010 pollution has become growing complaint with most Chinese. Importing a lot more oil in order to reduce use of coal (the major cause of air pollution in the north and northeast) was not enough. The annual “heating season” in the north continues to include more coal burning and more air pollution. Back in 2013 foreign analysts looked at Chinese health and life-expectancy data and concluded that the air pollution problems in northern China had already reduced life expectancy up there by at least five years. The government long played down the air pollution problems in the north but by 2010 that had changed. This was because of growing public unrest over very obvious air pollution in urban areas. The situation is worse this year and the government is blaming the weather. This does not help much (even though it is true). The pollution is believed to cause over a million premature deaths a year and the censors have been unable to keep Chinese from knowing this, or discussing it. Senior officials can buy expensive air filtration systems for their homes and offices, but they and their families could not completely escape the dirty air.

Venezuela

China denied American accusations that is was using its large loans to Venezuela as an opportunity to establish itself economically and militarily in South America. China pointed out that its “cash for oil” loans to Venezuela declined after 2014 as the price of oil plummeted. China had been a major lender to Venezuela and provided over $50 billion since 2007. Most of these loans are repaid with Venezuelan oil. The amount of oil owed China increases as the oil price declines, which means Venezuela has less oil to sell or use for domestic needs. But China pointed out that the Venezuelan oil is difficult to refine, which is why the U.S. is the major buyer as the Americans have built special refineries to handle it. China also faces huge losses because Venezuela became officially bankrupt at the end of 2017 and its socialist government has wrecked its oil industry and ability to pump and ship oil. The bankruptcy was not unexpected but China knew there would be great risks and potentially high costs for establishing themselves in South America. China also points out that other economic partners of Venezuela like Iran, Russia and Cuba are not providing much help because the situation in Venezuela is so chaotic and unpredictable.

February 4, 2018: A UN report on North Korean efforts to violate economic sanctions detailed how North Korea managed to earn nearly $200 million in 2017 by evading export sanctions. Most of the illegal export income came from selling at least 39 shipments of coal mainly to Russia and China (as well as South Korea, Malaysia, and Vietnam) and weapons to Burma (small arms and missiles) and Syria (chemical weapons). North Korean special forces have been training commandos in Mozambique and other African countries, something North Korea has been doing for decades.

China responded with new rules making it more difficult for Chinese companies to get away with the false paperwork, turning off the automatic ship tracking devices and other scams North Korea uses to illegally export items to China. In addition China is calling for more sanctions on dual use items that are still legal for North Korea to import from China. A list of items was provided by China and included gas masks used by firefighters (that could also be used by soldiers), flight simulators for civilian aircraft that could easily be adapted to military aircraft and air scrubbers for underwater operations (ship repairs, offshore oil wells) that could also be used in submarines. The items in the Chinese list are all available from Chinese manufacturers.

February 1, 2018: In the northwest (Xinjiang province) the government increased by 40 percent the number of local officials assigned temporarily to poor villages in the province. This is the third year for this program and in 2018 76,000 local (ethnic Han) officials will spend some time (usually a week) in poor (usually non-Han) villages to help people with their problems, especially economic ones. When these officials complete their assignment they report what they have seen and done, along with anything related to ethnic separatism or Islamic terrorism. This helps the government select those villagers who will be sent to re-education camps (for a few weeks or six months or more.) There are currently over 100,000 Moslems (most of them Uighur, ethnic Turks who used to be the majority in Xinjiang) in the re-education camps. That is out of the nine million Uighurs in the province. Uighurs are a shrinking minority as more and more Han Chinese move in. Even some Uighur converts to Christianity (about a hundred) have been sent to re-education camps, but very few Han Chinese.

These rural poverty programs are also supplied with large sums of money for investment in some villages or villagers (additional educational opportunities) to effect obvious changes. This program also uncovered past corruption where money allocated to help poor villages was stolen by officials involved with it. The guilty officials are prosecuted and usually sent to prison. The government made a big deal of these prosecutions of people who stole poverty relief funds.

January 31, 2018: During January there were over a dozen senior Chinese naval officers promoted to admiral or admirals promoted to higher admiral ranks and one thing most had in common was command experience with Chinese ships operating far from China. Since 2000 these long voyages have become increasingly common and it has become obvious that if y9u want to get promoted you want to be serving on one of those ships. For more senior officers you want to be commanding one of them. The overseas service includes operations in the South China Sea.

January 30, 2018: Japan’s first F-35A stealth fighter became operational this month. Nine more will arrive in 2018 and eventually Japan will have at least 42 F-35s. This means the Japanese F-35 may soon go up to intercept the growing number of Chinese and Russian warplanes that enter the Japanese ADIZ (Air Defense Identification Zone). South Korea is also seeing more ADIZ activity. Japan is also looking to purchase some F-35B aircraft. This is the version that can land and take off like a helicopter and could operate from Japanese helicopter carriers (which are described as destroyers but look like light carriers.) These carriers could carry six F-35Bs as well as come helicopters.

January 27, 2018: The government reported that oil and petroleum product exports to North Korea in December were basically zero. The only exception was a small quantity of aviation fuel to sustain what little commercial aviation activity still occurs in North Korea. Imports from North Korea were down 82 percent in December, the lowest level in four years.

January 26, 2018: The government has installed radiation monitor along its North Korean border that immediately detect increased radiation and report it. This is to deal with North Korean nuclear weapons research and testing facilities near the border, some of which have released large quantities of radiation in 2017. There are also portable radiation monitors distributed to villages along the North Korean border. These are to be used if there is an American attack on North Korea with nuclear weapons. The monitors will alert local officials when it is time to evacuate because of highly radioactive fallout. These officials are also regularly briefed on plans (which are constantly changing) to deal with a flood of North Korea refugees. This might occur if there is a government collapse in North Korea.

January 25, 2018: The United States imposed new sanctions on two Chinese firms (and seven North Korean ones) as well as sixteen individual North Koreans and six North Korean owned ships. The Americans are going after North Korean and Chinese trading companies, which typically deal with a lot of different products and are traditionally able to adapt to new situations. Trading companies often get involved with smuggling.

January 22, 2018: In Bangladesh the government cancelled a contract for a major Chinese company to build a road. The cause was corruption as officials from CHEC (China Harbor Engineering Company) sought to obtain the “cooperation” of a Bangladeshi official (for $60,000) to ignore illegal financial activities by CHEC as it did business in Bangladesh. CHEC is a major Chinese firm and has (and is still) worked on major overseas construction projects (like the Gwadar port in Pakistan).

January 20, 2018: Off the coast near Shanghai a Japanese P-3C maritime patrol aircraft took pictures of a North Korea tanker receiving large quantities of refined petroleum products from a tanker registered in the Dominican Republic. The Japanese aircraft was joining similar American and South Korean efforts to patrol areas where these illegal transfers have been taking place since late 2017. South Korea has seized some of the participating tankers. This transfer of prohibited goods was because of UN sanctions established in September 2017. North Korea has continued to come up with new ways to cope with the growing list of items it cannot legally import because of the sanctions.

January 17, 2018: An American destroyer (USS Hopper) carried out a FONOP (freedom of navigation operation) in the South China Sea near Scarborough Shoal off the coast of the Philippines. China protested as they now consider this area part of China and since 2012 has posted warships (coastguard or navy) to enforce their claim. In 2017 China built an environmental monitoring station on Scarborough Shoal, which is 220 kilometers from one of the main Filipino islands (Palawan) and 650 kilometers from Chinese territory (Hainan Island) and according to international law (and a recent international court decision) is Filipino. The Chinese say they have prior claim to most of the South China Sea and basically dares the rest of the world to try and stop them. This makes sense to most Chinese because the Chinese have long called China Zhongguo, which is usually translated into English as “middle kingdom”. But a more literal and accurate translation is “everything under the heavens.” Until the 21st century this mainly meant adjacent land areas. But now China points out that “everything” means the South China Sea as well. Chinese media report these FONOPs as a violation of international law and most now trigger a response by Chinese warships or warplanes. In reality China rarely opposes the American warships. These exercises are meant to affirm that many of the Chinese claims to the entire South China Sea are invalid and that the right to free passage through China’s EEZ is assured.

January 11, 2018: China revealed that trade with (to and from) North Korea fell 10.5 percent in 2017 compared to 2016. December 2017 saw the sharpest decline, with only half the trade compared to December 2016. China has also gone after North Korean businesses that were supposed to have shut down because of 2017 sanctions but did not. Police (regular or secret) were sent around to force the issue and suddenly the only North Korean owned hotel in China was closed. The hotel had long been a base for North Korea espionage and hacking operations because the staff were all North Korean. Cracking down on Chinese smugglers (and other gangsters) has proved to be more difficult as these outlaws have long preferred to avoid government scrutiny even when they were doing things the government asked them to do.

January 10, 2018: The government reported that 159,000 people were convicted and punished for corruption in 2017. There were 122,000 separate cases of which 39 percent involved poverty reduction efforts. Corruption investigations have been increasing every year. There were only 54,000 in 2015, which was 37 percent more than 2014. About 90 percent of those investigated for corruption go on trial and only about five percent were punished. Only about 12 percent of those punished were “tigers” (senior officials) while the rest were “flies” (those with no power or clout to avoid prosecution). The government says (quietly, to foreign observers who know what is really going on) that it is really trying to discourage corruption, not create a lot of enemies in its own senior bureaucracy. Some tigers accused of corruption use bribes and intimidation to avoid punishment, although few are able to keep their jobs. The government prefers to make deals that avoid a trial or prison if the accused can provide evidence of other senior people who are guilty and not known to prosecutors. Those punished most severely are the ones responsible for something that got a lot of people killed. This often results in execution, especially if the offender is a civilian (usually a senior business executive). Another pattern noticed by foreigners (working from public records) is that “tigers” accused of corruption tend to be disproportionately people who had not supported current leader Xi Jinping before he became head of the government. Those who did support Xi Jinping for a long time and are caught up in a corruption investigation still tend to get punished, but in the form of quietly retiring and often allowed to keep much, if not all, of the wealth they stole. One area where this “friends of Xi Jinping” angle does not work so well is the military. The senior officers accused of corruption had fewer opportunities to support (or not) Xi Jinping, who came up through the civilian and Communist Party bureaucracy. Corruption in the military has been an ancient tradition and there’s a lot more opportunities to steal now. Xi Jinping has made it his personal goal to break that tradition, or at least greatly erode the extent of corruption in the military and that means a lot of the accused “tigers” tend to be generals and admirals.

January 9, 2018: The government began another campaign to encourage foreign websites to stop referring to Tibet, Taiwan and Hong Kong as if they were separate countries. These campaigns involve publicizing the economic sanctions the government can impose on large firms that do business with China and encourages those firms to not only comply but to pressure everyone else they do business with to do likewise. These media campaigns have become more and more effective as more foreign firms set up operations inside China.