January 23, 2015: Time is not on China’s side. There are numerous examples of this. One of the more obvious is the shrinking Chinese work force. While overall population increased 7.1 million in 2014 (to 1.37 billion) but the working age population declined 3.7 million (to 915 million). The number of Chinese over 60 increased 10 million to 212 million. All this began in 2014 and will continue for decades. The biggest problem, though, is the growing shortage of workers. As the population ages, all those one child families means there will be more elderly than the economy (and the shrinking workforce) can effectively support. Currently there are 11 working age Chinese for every retiree. By 2050, there will only be two for each retiree. At that point, retirees will comprise 30 percent of the population (versus 13 percent now.) Traditionally, children cared for their parents in multi-generation households. That model is dying out, and China is faced with huge pension cost increases at the same time they expect their economy to be the mightiest on the planet. But at that point, the largest single government expense will be the care of the elderly, and this will impose crushing taxes on those of working age. Many working age Chinese are worried about this, for there is no easy solution in sight. China tried (in 2013) to relax the one-child policy but the newly affluent Chinese are less eager than earlier generations to have a lot of kids. To make matters worse there is not much in the way of pensions or health care for most of the elderly to begin with. The government recognizes this is a real problem but does not, and will not have the cash to deal with it. The population shrinkage is accompanied by another problem. Since the 1980s many of those couples forced to have only one child aborted a child if it was a female, because much more importance is attached to having a male heir. Thus there are 38 million more males than females in China, and the disparity is growing. These surplus males are coming of age, and the competition for wives is causing problems. Women are taking advantage of their scarcity, but men are also going to neighboring countries to buy, or even kidnap, young women to be wives. This is causing ill will with neighbors, where females are enticed or coerced (kidnapped by criminal gangs) to become wives of Chinese men who have no other options.  It’s not just brides who are moving to China, eight million workers moved to China in 2014. It’s these migrants that will become increasingly important in the next few decades for dealing with the labor shortage.

It’s not just population growth that is slowing. The government predicted 7.5 percent GDP growth last year but actual growth was closer to seven ten percent. Many investors, Chinese and foreign, fear GDP growth may fall to five percent in 2015, although the government officially predicts seven percent or more. Over the last few years Chinese officials became more open about the problems they have getting accurate economic information for such things like annual GDP and unemployment rates. Apparently Chinese GDP has not been growing steadily at near ten percent a year for decades. Chinese officials do eventually (months or years later) get more accurate data and while Chinese GDP has actually been steadily growing over the last three decades the annual growth has actually varied from 5-15 percent. Chinese official policy was to keep everyone calm by issuing less variable annual growth rates. In short, the official numbers were doctored. For more accurate and immediate indicators of economic activity Chinese and foreign economists and business leaders use things like electricity production, railroad traffic and similar data that cannot be manipulated by local officials to make their city or province look more successful. Many financial exerts inside and outside China fear that all this official manipulation of economic data (an ancient practice in China) is masking some serious economic problems that could go sideways at any time and cause a banking crises that would paralyze the economy for a while and cause political chaos. It’s very much a crouching tiger and hidden dragon. This is an ancient phrase warning that behind seeming success and talent lurks the possibility of imminent disaster. Chinese are ever mindful of this sort of thing.

The affluence has not just reduced the birth rate, but it has increased the drug addiction rate. China will not release official figures but it is estimated (using arrests, drug seizures and such) that there are over 15 million addicts in China and that this is rapidly increasing. This is happening despite vigorous government anti-drug efforts. Arrests for drug offenses have increased more than ten times in the past decade yet the drugs keep coming in (especially from neighbors like Burma, North Korea, Thailand and Afghanistan).

Since the Chinese Communist Party is under growing popular pressure to do something about the rampant corruption in China (and specifically in the Chinese Communist Party) it has been arresting and prosecuting a growing number of senior officials. New anti-corruption measures were announced for 2015, to include more scrutiny of senior officials and large corporations (who pay the largest bribes). For years most Chinese believed the anti-corruption effort was having little impact. But now there are some believable indicators of progress. This comes in the form of declines in gambling (a favorite activity of corrupt officials) in Macau, where most of the legal gambling takes place. For the first time in over a decade annual casino revenue declined (by 2.6 percent). Worse, the decline in December was over 30 percent.

It’s not just drugs and corruption the government is cracking down on. Visible dissent is also a major target. The government has rehabilitated some old Maoists and encouraged a new generation of communist zealots to find and crush criticism of the government. This includes unauthorized discussion of corruption, criticism of communism or the Chinese Communist Party. This thought control is becoming more of a nuisance to Chinese, which is not good news for the government of the world’s largest communist police state.

India is accusing China of continuing to violate a 2013 agreement that was supposed to halt the Chinese troop incursions across the LAC (Line of Actual Control) into Indian territory. Despite the accusations Indian and Chinese officers continue to meet regularly to discuss the matter. The LAC is also known as the MacCartney-MacDonald Line and is the unofficial border between India and China. The LAC is 4,057 kilometers long and is found in the Indian States of Ladakh, Kashmir, Uttarakhand, Himachal, and Arunachal. On the Chinese side it is mostly Tibet. China claims much territory that is now considered part of India. There have been hundreds of armed confrontations over the last few years as one side or the other accuses “foreign troops” of crossing the LAC. China will talk with India over the claims on Indian territory but refuses to back down. This is making India, which has a defense budget one third that of China’s, nervous. Moreover Chinese defense industries can produce new weap0ns (often serviceable clones of stolen Russian designs) on budget and on time while India cannot do the same. What India is doing increasingly is spending more money in the areas China claims, especially building roads and military bases. All this means more work for the locals, who do not want to become part of China.

The growing Chinese aggression in the South China Sea and adjacent waters is based, according to the Chinese, on their interpretations of history. The Chinese claim just about every uninhabited islet and reef in the region, despite older and more substantial (recognized by international agreements) claims by nations that are closer to the disputed areas. China has ordered its scholars to dig up any historical evidence for early Chinese presence on rocks, reefs and uninhabited islands in the South China Sea. What the Chinese historians have come up with is often vague, hearsay or subject to wide interpretation. In effect, China wants to reverse centuries of more recent claims and practices to justify its aggression in the South China Sea. This Chinese effort has one major flaw; it ignores the fact that for thousands of year the Chinese imperial government (which lasted until 1910) disregarded seaward expansion or exploration. The current Chinese government has ordered this well-documents historical fact rewritten and reinterpreted and has made it clear that all contradictory opinions by foreign scholars are unacceptable. Meanwhile tangible Chinese pressure comes mainly in the form of intimidation by their growing fleet of warships, naval aviation and patrol boats. Actual force (usually bumping into “trespassing” fishing boats or other commercial ships) is usually done by Chinese non-military ships, under orders from nearby Chinese warships or warplanes. New tactics and procedures have to be worked out to counter these Chinese methods.

Meanwhile the U.S. State Department released a study of the Chinese claims in December 2014 that pointed out and agreed with the numerous legal and historical flaws in the Chinese claims and concluded that the Chinese had no case. The Americans did not say what they would do if China simply ignored rulings against it by international courts. At this point China appears determined to gradually increase its military control over the South China Sea until it can assert that it is most definitely part of China, is defended by the Chinese security forces and all foreigners must obey Chinese rules or stay out of the South China Sea.

Hardly a month goes by without American counter-intelligence efforts are arresting another Chinese spy. But this is largely due to increased spying efforts by China, rather than more success by the FBI and CIA. This use of industrial espionage has played a large part in turning China into the mightiest industrial and military power on the planet.

January 21, 2015: The Philippines complained again of continued and increased Chinese military activity within the Philippines EEZ (Exclusive Economic Zone, waters 380 kilometers from the coast) in the South China Sea. Filipinos have been fishing reefs and other shallow waters within the EEZ for centuries, long before there was a Philippine state and without interference from Chinese fishermen who occasionally showed up. That’s because fishing boats with refrigeration, a 20th century invention, only recently made it possible for Chinese fishermen to scour the entire South China Sea for fish to catch, refrigerate and carry back to China. The latest Filipino protests emphasize continued Chinese work on constructing concrete structures on some of these reefs, apparently to make possible the establishment of military bases. China says this is within their rights and no one is trying to stop them with force. The victims of all this aggression are waiting on the United States to take the lead in confronting China. The U.S. has declined so far. The Philippines regularly protests the growing number of Chinese warships and coast guard vessels making “sovereignty patrols" within the Filipino EEZ. China rejects such complaints as without merit because China owns the South China Sea and to the Chinese that is settled law.

January 18, 2015: In southern China two Uighurs tried to cross the border into Vietnam illegally but were caught and shot dead by border police. Two more Uighurs were arrested and a fifth appears to have escaped.

January 16, 2015: In Taiwan a retired army general and a Chinese intelligence officer were indicted for espionage. The two accused were arrested last year. Despite incidents like this China and Taiwan are improving relations despite the recent defeat of the pro-China government of Taiwan because of the growing anti-China sentiment in Taiwan. This change in popular opinion was not a surprise. In June 2014 the first ever visit of a senior Chinese official (the minister of Taiwan Affairs) to Taiwan was met with a mixed reception. Two events were cancelled because of the possibility of very violent reaction to the Chinese official. Many Taiwanese are very hostile to closer relations with China because they believe all this is simply a cover to make it easier for China to conquer Taiwan. China began making these friendly moves in 2008 and now millions of Chinese tourists visit Taiwan each year and Taiwanese are major investors in Chinese businesses. Many Taiwanese tolerate all this because it is profitable. But most Taiwanese now believe that mainland nationalists are lying about their intentions towards Taiwan and are determined to conquer the island nation one way (economically) or another (militarily). Thus the Taiwanese parliament had been approving defense budget increases recently that the ruling party tried to stop but could not. The ongoing pro-democracy demonstrations in Hong Kong are another thing that stokes anti-China attitudes in Taiwan. Chinese officials still believe Taiwan will be there’s but do not want to interfere with the crucial role Taiwan plays in the Chinese economy (especially in tech industries).

January 15, 2015: The government announced the names of 16 generals being investigated for corruption. This usually means that those being investigated will be convicted and punished. This large a number of senior officers under investigation at the same time is unprecedented. If nothing else this is meant to convince people that the government is serious about corruption. People will believe it when they see a lot fewer generals and admirals (or their families) building mansions they cannot afford on their military pay.

January 14, 2015: Japan announced its highest defense budget ever ($42 billion) for 2015. This is the third year in a row Japan has increased its defense spending. This is all about the growing threat from China, which is now spending $130 billion a year on defense.  China increased its defense spending 12 percent for 2015, compared to 2.8 percent for Japan. These annual Chinese increases peaked from 2005-2009, when they were 15-20 percent a year. Chinese defense spending is 1.7 percent of GDP, about a third of what the U.S. spends (as a percentage of GDP). According to NATO reporting standards (which take into account the many different ways you can calculate military spending) China is believed to spend about 50 percent more on the military than it admits. That would make 2015s military spending $195 billion. The decrease in spending increases over the last few years is a result of the international recession that began in 2008. China was hurt by this more than it likes to admit and has internal problems (corruption, inflation, pollution, labor shortages) that have hurt their economy. Japan is not just buying new weapons, but also paying for the increased costs of sending warships and warplanes out to intercept Chinese intrusions on Japanese borders.

In Burma , in response to pressure to do something about the rampant corruption in the north the government organized a raid on illegal loggers (who do about half a billion dollars in business a month) and security forces arrested 122 people in the north (Kachin State). Not surprisingly 83 percent of those arrested were Chinese and the rest from local tribes. Those arrested had documents giving them permission to take down the trees and transport the logs through KIA (Kachin Independence Army) controlled territory. The KIA and two other tribal rebel groups provide most of the armed opposition to the Burmese army in the Chinese border area. Rebels remain active here because China is a major market for heroin and other drugs produced in the north, as well as the illegal production and smuggling of lumber and jade. China is also the source of all the military equipment the rebels need. So this crackdown on smuggling is actually another way to attack the tribal rebels up north. While the tribal militias control large portions of the north, the more heavily armed army units can go where they want if they are willing to fight their way in. The rebels will fall back against the superior firepower of the army, and then block the roads the troops just used to advance. China protested the arrest of its citizens. While the Chinese government is hostile to the drug smuggling, the jade and lumber are considered “clean” crime that helps the Chinese economy. The Chinese attitude is that it is OK to bribe locals so that Chinese firms can do business in foreign countries and that these arrests are the locals breaking an agreement after being paid for their cooperation.

January 12, 2015:  In the west (Xinjiang province) police disrupted another Uighur terror attack (using axes, knives and bombs) and killed six of the attackers before they could do any damage.

January 10, 2015:  While the new American film “The Interview” angered North Korea a great deal, and has not yet been released in China, millions of Chinese have seen it so far. The reaction has been overwhelmingly positive. The day after The Interview was released in the United States (on December 25th, in only 500 theaters and online) nearly half a million illegal copies were downloaded by Chinese and the reviews began to appear on Chinese web sites. Most of these illegal copies had Chinese subtitles quickly added. Most Chinese thought the film was hilarious and a classic. Some Chinese web sites translated the film title to “Assassinate Kim Jong Un,” which was an intentional dig at the North Koreans. A few government owned media “reviewed” The Interview and did not seem as pleased with the film as the average Chinese. One government controlled media reviewer described it as; “senseless cultural arrogance.”  Interestingly the Chinese government did not order its two million Internet censors to crack down on these online messages discussing the film or try to interfere with the illegal distribution of The Interview inside China.  All this no doubt angered North Korea even more because China is the only major ally North Korea has. But China has not been pleased with North Korea lately, especially North Korean development of nuclear weapons and long range ballistic missiles. The Chinese government knows the average Chinese is even less happy with North Korea and allowed this reaction to The Interview to play out in order to send a message to North Korea. This is a common way to send a message in East Asia and North Korea did not show any official displeasure at the disrespect. They got the message, even if they did not like it. North Korea is not pleased with the fact that the movie is apparently going to make money, but is much more upset at the message from China.

January 9, 2015: China announced the dismissal or other punishment of senior 17 officials in the west (Xinjiang province) where a terrorist attack last September left over 40 dead (from the attack and the violent police response). Locals blamed lax police work for the high death toll. The punishments indicate that government agreed, but was not willing to prosecute anyone as this would implicate other, often more senior, inept officials.

January 6, 2015: : China announced that it had formally protested to North Korea over a North Korean Army deserter who entered China in late December with a stolen pistol and then killed four Chinese civilians (while robbing them) on December 27^th. Within 24 hours of the murders he was hunted down and killed by Chinese security forces. A week later China began organizing a civilian militia to help patrol a 500 kilometers section of the North Korean border where most of the illegal crossings take place. There are now more of these illegal crossings, often by North Koreans who turn to crime. That has angered the locals and the militia is taking advantage of that. There was a time, a few years ago, when China and North Korea kept incidents like this quiet. No longer, mainly because it is happening more frequently and China believes the North Koreans are losing control with desertions in their military and security services on the rise. There was no announcement of the murders in Chinese media but the diplomatic protest was news outside of China and despite Chinese Internet censorship news of the murders got into China and spread rapidly. Before the end of 2014 there were anti-North Korean demonstrations by some Chinese (many of them ethnic Koreans) living near the North Korean border. Since at least 2008 North Korea has been trying to do something about the growing number of soldiers who are deserting and fleeing to China. There are always some troops who desert and just disappear inside North Korea. But more of these deserters are making it to China, and even South Korea. Those who make it to South Korea report that the troops are now going hungry, and senior officers are stockpiling food and attempting to move their families to China. The worst desertion incidents are the ones where the deserters take firearms with them and rely on robbery to survive. This is especially bad if they do this while still wearing their North Korean military uniform. Both China and North Korea have increased their border security but the number of people, armed or not, trying to get out of North Korea increases faster and the escapees are more desperate and resourceful.

January 1, 2015: China bought 36 percent more oil (665,000 barrels a day) from Russia and less from Saudi Arabia (but still 997,000 barrels a day). The falling price of oil in the last year has saved China a lot of money and helped keep GDP growth going.

December 31, 2014: In Shanghai 35 people were killed in a stampede in the city’s fashionable waterfront district, where large crowds usually gather to welcome in the New Year. City officials have long been criticized for not paying more attention to crowd control, as other cities, especially in nearby countries (and the West) do.

December 30, 2014: China announced the dismissal of senior officials in the city (Kunshan) where explosions in a local factory left 146 dead last August. Locals blamed lax, or non-existent enforcement of health and safety rules in the factory. The dismissals indicate that the government agreed, but was not willing to prosecute anyone as this would implicate other, often more senior, corrupt or inept (but well connected) officials.

Three Chinese Coast Guard ships again moved near the Japanese Senkaku Islands. This was the 26th such intrusion this year and the first since November. The ships entered Japanese territorial waters (within 22 kilometers from shore), something that has been increasingly frequent this year. China claims ownership of the Senkanus even through Japan has occupied them for over a century.

December 29, 2014: China officially denied that it had anything to do with the recent hack attack on Japanese owned Sony Pictures and did not help North Korea in this matter either.

December 28, 2014: In yet another effort to keep growing religious zeal in check China cracked down harder this year on the celebration of Christmas. This included blocking much Google (including GMail) traffic. There was nothing really public about this crackdown, which is normal, just a lot of orders to halt this and that. Throughout Chinese history, governments have been overthrown by religious movements that harnessed and directed mass discontent and the current rulers are well aware of this. Sometimes the targets of this persecution fight back. In January 2014 millions of Chinese Internet users were redirected to a site connected with banned (and much persecuted) religious group Falungong. There users were shown how they could easily get around the heavy government censorship of the Internet. This was just another Falungong hack. Other nations have noticed and back in 2010 the U.S. government donated $1.5 million to an Internet freedom group GIFC (Global Internet Freedom Consortium), whose main function is producing software that enables Chinese Internet users to get around Chinese government censoring software. GIFC is one of several similar groups. But what really got the Chinese steamed and angry at the United States is that GIFC is supported and heavily staffed by members of the persecuted (in China) Falungong religious sect. The government sees religion as a constant threat. While Chinese are free to worship anyway they want, the government picks religious leaders, and imposes discipline. Thus the ongoing war against Falungong and Tibetan Buddhism. Both of these religions refuse to accept government control and are persecuted for it. But the persecution has not wiped out these two movements and this government officials believe sets a dangerous example for other Chinese. Falungong has used hacking and Internet based efforts to embarrass the government and keeps getting away with it. Christians, who so far have not been as willing to fight back as Falungong, have been rapidly growing in numbers. Christianity has been in China for centuries and currently is about five percent of the population.

December 27, 2014: The North Korean Internet was unavailable for at least two hours. This is the second time in a week that this has happened and the government blames the United States. The American government denies any involvement. The North Korea Internet is tiny with only 1,024 IP (Internet) addresses and only 18 domains. Use of this Internet is tightly restricted and closely monitored. The North Korean internet access is provided by China. There is a larger internal Internet, which can only be accessed from within North Korea and contains only government approved content (mostly propaganda or educational).