July 17, 2024: What most concerns Chinese is the state of the economy, which lately has not been performing up to expectations. China is still dealing with a housing bubble debt crisis, rising unemployment and inflation and continued slowing of economic growth. Economic growth continues to decline. It is under two percent a year and getting worse. That means more unemployment and lower living standards for most Chinese. A decade ago it became clear that the years of ten percent GDP growth were ending, assuming they were ever true at all. Not just because economic growth was slowing but because the central government was finally forced to go public, for the first time, about the false economic data that provincial officials had been sending to the central government for decades.

Since 2014 Chinese officials have become more open about the problem as they have been getting accurate economic information for such things like annual GDP and unemployment rates. Apparently Chinese GDP has not been growing steadily at nearly ten percent a year for decades. Chinese officials do eventually, as in months or years later, get more accurate data. Chinese GDP growth has actually varied from 5-15 percent per year. Chinese official policy was to keep everyone calm by issuing less variable annual growth rates. It was also less work and safer to report officially approved GDP growth figures rather than going to the trouble of determining the objectively true figures, especially when the people stuck with the job knew that the politically protected provincial officials were lying. 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 experts 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 an economy-paralyzing banking crisis. It’s very much a crouching tiger and hidden dragon situation. 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.

A major cause of recent financial difficulties was the lack of government bank supervision that enabled risky practices to proliferate. This led to overbuilding and the inability of builders to sell their surplus housing. This led to enormous real estate defaults that have had a negative impact on the entire economy. The major real estate firms involved are Evergrande and Country Garden. Together these two firms hold half a trillion dollars in debt. The Chinese government ordered banks to tolerate delayed overdue payments on this debt. This damaged the viability of the banking system and caused a slowdown in investment in the economy. In early 2024 Evergrande was declared bankrupt and subjected to dissolution in order to pay creditors as much as possible. Evergrande has $300 billion in debt and creditors are losing all but a few percent of that. Chinese banks holding Evergrande debt were ordered by the government to handle the losses in coordination with a government plan to prevent the Evergrande bankruptcy from causing further harm to the economy. Country Garden and its $200 billion in housing debt are taking the same route to dissolution as Evergrande.

All this was made worse by new political problems. Supreme leader Xi Jinping made himself leader-for-life in 2018 and now screens or makes all key economic solutions. Xi isn’t an expert in economics and is unaware of the complexity of the Chinese economy and historical examples of similar situations. Back in the 1980s China adopted a market economy and shed much of its socialist state ownership of everything responsibilities. China was still ruled by a nationalist dictatorship government that left the economy alone and for a while that worked. There was a growing problem with corrupt CCP (Chinese Communist Party) officials that eventually did more damage than anyone could cover up. This means that foreign investors or companies that used to move manufacturing operations to China are now instead moving their existing manufacturing facilities out of China and often to smaller nearby countries that have fewer economic and political problems.

Xi Jinping hasn’t come up with a workable solution for all this yet. One reason for this lack of action is the awful problems in the Chinese military taking up so much of his time. This is mainly about corruption, which went all the way to the top, as in the defense minister who was recently removed and replaced. It’s more difficult to deal with the many corrupt generals and admirals. All this corruption weakened the military. Finding enough honest junior officers to be promoted is difficult and time-consuming. This is a critical situation for the CCP because Chinese soldiers and officers take an oath to defend the CCP which, in turn, is responsible for doing what must be done to rule the country effectively. After some reforms in the 1980s, the new relationship between the CCP, the military and the economy worked for a few decades until it didn’t.

Xi is repeating a familiar span of control problem with autocracy. As an autocrat tries to control more and more, he ends up controlling both less, and less effectively overall. Chinese are familiar with this pattern.

The Chinese military is an enormous collection of four separate services that provide employment for over a million Chinese. The military is officially called the PLA (People's Liberation Army) and contains four separate services: the Ground Force, the Navy, the Air Force, and the Rocket Force. Between 2003 and 2005 the PLA reduced its peacetime strength by half a million personnel, from 2.5 million to about 2 million. Most of the reductions were in non-combat ground forces. This made it possible for more money to be spent on naval, air, and strategic missile forces. This was part of the Chinese shift from a large, low-tech, ground force to a military with the capability to operate far from the Chinese mainland, mainly in the South China Sea.

The Ground Force is the largest in terms of manpower, with about 975,000 personnel in twelve active duty group armies sequentially numbered from the 71st Group Army to the 83rd Group Army. These armies are distributed to each of the five theater commands, with each command receiving two to three group armies. In wartime, numerous reserve and paramilitary units can be mobilized to reinforce the active group armies. The ground forces reserve component comprises approximately 510,000 personnel divided into thirty infantry and twelve anti-aircraft artillery divisions.

The Navy was, until the 1990s, subordinate to the ground forces. Since the 1990s the navy has undergone rapid modernization. The 300,000 navy personnel are distributed to three fleets, the North Sea Fleet headquartered at Qingdao, on the Yellow Sea between northeastern China and the Korean Peninsula, the East Sea Fleet headquartered at Ningbo, north of Taiwan, and the South Sea Fleet headquartered in Zhanjiangn adjacent to Hainan Island and the South China Sea.

The navy includes a seven-brigade Marine Corps with 25,000 troops. There is also a naval aviation force with 26,000 personnel operating and maintaining several hundred attack helicopters and fixed-wing aircraft. For over a decade China has been seeking to create a naval force that can operate on the high seas far from the Chinese coast. China has never had a high seas navy before and concentrated on controlling coastal waters.

The Air Force has 395,000 personnel organized into five Theater Command Air Forces that share 24 air divisions.   As of 2024, a new system has been established, consisting of 11 Air Corps Bases controlling air brigades. Bomber divisions, and a few special mission units remain divisions. Each air division has 2 or 3 aviation regiments. Each regiment has between 20 and 36 aircraft. An Air Brigade has 24 to 50 aircraft.

There is also an air defense component called the SAM (Surface to Air Missile) Corps that consists of divisions and brigades. There are also three airborne divisions consisting of air force personnel trained as parachute infantry.

The Rocket Force has 120,000 personnel and operates and maintains nuclear and conventional strategic missiles. China is believed to have between 100 and 400 nuclear warheads. The Rocket Force maintains seven bases. Six are assigned to the six theater commands while the seventh stores and maintains the nuclear warheads.

While all this sounds impressive, corruption in government, military and economy are still an issue, as has been the case for thousands of years. Corruption was reduced for about a decade after the communists took control in 1949. During that period the corruption revived and returned stronger than ever. The corruption in the military is so debilitating that Chinese leaders believe it means China cannot regain control of Taiwan using military force. This became evident when President Xi inspected the Taiwan reconquest rocket forces and found most of the missiles inoperable because of corruption within the procurement bureaucracy.

Assuming the corruption can be made to disappear, it would still take several years before a Taiwan attack could be attempted. Additional forces and weapons must be created without the effort being crippled by corruption. That sounds unlikely, but President Xi knows what he is up against and declares that he can make it happen. Chinese and Western historians point out that military incompetence and military corruption have been the standard for thousands of years. The corruption only abates if China is invaded by forces that seem capable of subduing the entire country.

It requires a major political effort to turn the corruption problem around and such efforts are often unachievable. Most wealthy Chinese know this and many have, at great expense, obtained foreign passports and moved some of their assets overseas as a form of insurance against another government collapse and possible civil war. That’s been the way China has worked, and malfunctioned, for thousands of years. The CCP is seen as just another dynasty that prospered for a while and then failed. Chinese leaders pay attention to the thousands of years of Chinese history and cycles that continue to repeat.