March 5, 2019: The government is having a hard time managing its economic slowdown. The economy is making an expected move (as rapidly developing market economies do) from the dependence of export sales and spending on infrastructure to a consumer economy. This is a switch the United States made a century ago and Japan went through it three decades ago and had problems, as most market economies do at this stage of their development. But China is unique in two respects. It is the largest economy to go through this process and it is a nation that is still a police state, not a democracy (or constitutional monarchy). The government pays attention to public opinion but also devotes a lot of time and effort towards molding that opinion. The government makes it clear that the main goal of the government is to keep the CCP (Chinese Communist Party) and party leader (and president for life of China) Xi in power. The military swears to serve and protect the CCP, not China or the Chinese people. This was made clear recently when it was announced that the main goal of anti-corruption measures was to keep Xi and the CCP in power. This creates an economic situation unique in history and that makes it difficult to use past economic history as a guide. One thing is certain; the CCP dominated government is using its powers to censor and control the news to try and keep Chinese from seeing what is really happening in China and the rest of the world. This effort works, but only for a while. Despite all the media controls modern communications tech has made it easier to pass accurate news around in a police state, it just takes longer.

The news travels faster than in the pre-Internet and cell phone days and that has become a major problem for police states. It means that now police (authoritarian) states have to pay more attention to public opinion. Successful autocrats have always done this and used that knowledge to avoid rebellion or civil war. CCP leaders don’t like the modern (faster news spread and faster public reaction) version of this but have made the best of the situation by calling their attentiveness to public opinion “Chinese democracy.”

Coping With Korea

China has confirmed that it had made a separate deal with North Korea over sanctions. Several meetings between North Korean leader Kim Jon Un and senior Chinese officials indicated that China was more interested in North Korea reforming its economy and becoming less of a financial burden and security risk for China. China also wanted the North Korean nukes gone but the major concern was preventing massive unrest in North Korea. Thus China has, since late 2018, unofficially eased up on some of the current UN economic sanctions. In return, North Korea has continued to go through the motions of negotiating denuclearization (not only getting rid of their nukes but allowing regular on-the-spot inspections to confirm compliance). The reality was that inside North Korea the official word (distributed to key officials and leaked) was that North Korea had no intention of getting rid of the nukes and was going through the motions convincingly in order to get the Americans to ease the sanctions a bit because North Korea was continuing to negotiate but not actually doing anything to denuclearize. This became obvious on March 1^st when the meeting between the North Korea leader and the American president ended with the Americans refusing to ease sanctions unless North Korea made some real and verifiable progress on denuclearization. Later in the day, China asked the UN to ease up on some of the sanctions because the North Koreans were at least making an effort. China was going along with the North Korean scam and was trying to persuade the UN to cooperate. At the same time, the Americans are putting economic pressure on China to halt its unfair, and often illegal trade practices. This included massive theft of American and Western technology and continued economic espionage on and data theft from the West. The Chinese economy is already in trouble for self-inflicted problems (corruption and falsifying economic data) and the North Korean mess is getting worse. North Korea is still in danger of a government collapse that would send millions of refugees into China and force China to either take control of North Korea and be stuck with huge costs (financial and otherwise) or allow South Korea to do it. The latter is considered an unacceptable option but it is there whether China likes it or not. So is the fact the Chinese aggression against neighbors (especially the South China Sea and Indian border) has created a growing (in numbers, power and resolve) anti-Chinese alliance.

China is willing to unofficially reduce sanctions as long as North Korea follows Chinese advice about reforming their economy and adopting more of the techniques that have enabled China to remain a communist police state while also benefitting from a free market economy. Kim Jong Un is apparently succeeding in convincing China that North Korea will accelerate its adoption of Chinese economic practices. That includes being more open to economic cooperation with South Korea. Since the 1990s South Korea and China have become major trading partners. South Koreans are becoming more willing to help North Korea economically even though that will mean less incentive for North Korea to denuclearize. 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. North Korea has established a network of companies and banks that will act (for a fee) as middlemen in turning North Korean profits from foreign operations into products that can be shipped to North Korea without any real proof North Korea paid for it. Of course, it is obvious that these imports are not free foreign aid but the source of payment is difficult to trace, often more trouble than it is worth. But when the effort is made a new North Korea financial network is detected.

Venezuela

China is still waiting to see if the Maduro government of Venezuela will survive its latest problem, being condemned by most Western Hemisphere states and many others worldwide for rigging elections and refusing to allow food and medical aid in. Maduro insists foreign aid is not needed and that elections over the last few years were fair. Maduro does not believe there is any kind of crisis other than what problems there are were created by foreign intrigue. Yet ten percent of the population has fled the country because of the economic collapse and shortages of food, medicine and much else. China, like many other nations, is waiting to see if the Venezuelan security forces (army and police) remain loyal in the face of family, friends and neighbors of most soldiers and police suffering from the shortages and violence. China is willing to deal with the rival president of Venezuela, the widely accepted Juan Guaido who, technically is the interim president until fair elections can be held. Even Russia and China agree the political and economic situation in Venezuela is a mess but both want to protect their investments (loans and business agreements) and avoid any unfavorable fallout. China is in touch with Guaido while Russia is letting China take the lead. China is allowing senior Maduro officials to send family members to China, which may indicate a willingness to provide comfortable exiles for these wealthy families. The only catch is their wealth is the result of massive corruption by Maduro cronies and Maduro himself. The cash is often stashed in Western banks, which are seen as more reliable (even though they will respond to court orders). Putting dirty money in Chinese banks puts you at the mercy of a government that is not answerable to courts or any international rules.

Perilous Pakistan

The Pakistani military told China that, for the right incentives Pakistani could control and manipulate their local Islamic zealots. That proved more difficult than anticipated and while a four year military campaign (starting in 2014) against the local Islamic terrorists (the extremists among the Islamic conservatives the Saudis created) reduced the number of Pakistani Islamic terrorists seeking to replace the current government (a democracy dominated by the military) with a religious dictatorship, those zealots have become a permanent part of Pakistani society. This has caused problems with neighbors like Iran (Pakistani zealots kill Pakistani Shia), China (Pakistani zealots attack Chinese investments and the Chinese running them) and India (Pakistani zealots seek to terrorize India and seize control of Kashmir and eventually all of India). These neighbors have become increasingly forceful in their demands that the Pakistani government do something about this. Pakistan placates the Iranians by refusing to provide military assistance to the Arabs in Yemen, or against any Iranian military operation directed at the Gulf Arabs. Now Pakistan has to deal with increasingly angry Arabs who threatened to halt the cash infusions that the Pakistani economy increasingly depends on. The Chinese demand quick and effective action against Pakistan supported Islamic terrorists who threaten Chinese investments. This was one of the reasons for the 2014 campaign against many of the Islamic terror groups operating from Pakistani bases. Pakistan had hoped the Chinese would replace the Arabs as a source of cash support but the Chinese don’t operate that way. China makes investments and does not provide cash like the Arabs and, until recently, the Americans did. The United States has halted all cash support for Pakistan because the Pakistanis would not shut down Islamic terror groups that attacked American interests. Now the Pakistanis know that if the Chinese feel they are being played, like the Americans were, the Chinese will not be patient or forgiving. The Americans are no longer as accommodating as they used to be and the Iranians never were. India is a nuclear power with a larger army and economy than Pakistan. India is also losing patience and threatening war. Pakistan has to worry about too many past mistakes catching up with them at once. China has told Pakistan openly that China is not an ally or protector of Pakistan. China is a business partner and as long as business continues there will be a Chinese presence in Pakistan. The same rules are applied to everyone else. China does business with Iran and the Sunni Arab states Iran is at war with. Same with Russia and Ukraine.

March 2, 2019: South Korea reported that China, which accounts for nearly a third of South Korean export sales, continued to cut orders for South Korean goods resulting in February an overall South Korean exports declined 11 percent compared to February 2018. Chinese orders have been declining sharply since late 2018. This is all about the massive economic changes China is going through.

March 1, 2019: The U.S. declared that it would defend the Philippines in the South China Sea according to the mutual defense treaty the U.S. and Philippines have had since 1951. Filipino officials asked for a more precise definition of what constituted an “attack.” Chinese strategy is to be aggressive but not to the extent that it would be an obvious act of war.

February 28, 2019: China announced it will increase defense spending by 7.5 percent, to $178 billion, in 2019. While actual Chinese annual defense spending is over $200 billion the official defense budget is announced each year and for the second year in a row defense spending is higher than GDP growth. GDP growth for 2019 is expected to be six percent. In 2018 the defense budget went up 8.1 percent hike when GDP growth was under 7 percent. For 2016 spending was up 7.6 percent versus and 10.1 percent in 2015. These annual Chinese increases peaked from 2005-2009 when they were 15-20 percent a year. Chinese defense spending is about 1.4 percent of GDP. That’s 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 up to 50 percent more on the military than it admits. That would make 2019 military spending about $250 billion. China has had the second largest annual defense budget on the planet for over a decade now. In East Asia, the closest competitor is Japan, which continues to increase its defense budget and is spending $48 billion in 2019.

February 27, 2019: Two Chinese aircraft carriers went to sea at the same time. This was a first for China, even though both carriers are operating independently. The only active Chinese aircraft carrier, the Liaoning (CV-16) achieved combat readiness in May 2018, along with its escort and support group. Back then Liaoning was only combat ready in day time and used mainly for training. There was only one Chinese carrier jet fighter pilot qualified to land on a carrier at night and barely enough carrier pilots to fly a full complement (24) of J-15 fighters on the Liaoning. Chinese carrier aviation is making steady progress, just not as fast as the Chinese Defense Ministry publicists describe. China’s second aircraft carrier (CV-17 Shandong) was launched (in the water) in 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 will 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 it 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 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.

There was some other good news for Chinese combat aviation. A Pakistani official claimed that the Chinese designed JF-17 fighter was responsible for recently shooting down a MiG-21 in Kashmir. India officials insist that a Pakistani F-16 downed the MiG-21 and presented fragments of an American AMRAAM air-to-air missile, which the Pakistanis have and only their F-16s are equipped to use it. Pakistan insists the AMRAAM fragments were planted and are from an AMRAAM sold to Taiwan. Meanwhile, the news, whether true or false, of a JF-17 shooting down an enemy aircraft, made the JF-17 a little “combat proven” and there was a large boost in the stock price of the Chinese firm that developed the JF-17 and still manufactures components (which are sold to Pakistan.)

Since early 2018 China has been implementing major upgrades for the JF-17. These “Block III” upgrades mainly involve replacing the mechanical radar with an AESA (phased array) radar and a general upgrade in electronics. The Chinese manufacturer (CAC) is doing this because it has found AESA an essential feature if you want export sales. CAC also builds the J10, which is similar to the JF-17, and installed AESA in the J10 in 2007 so China definitely has the tech. While there have been some JF-17 export sales many potential customers refused to consider the JF-17 because the aircraft was not considered competitive. That doesn’t bother Pakistan, where their first JF-17 squadron became operational in 2010. Upgrading Pakistani JF-17s with AESA will be a first for Pakistan because none of the other Pakistani fighters have it (not even the F-16s.) So far Pakistan is the only user of the JF-17 although Burma and Nigeria have some on order. Pakistan has over a hundred JF-17s. The JF-17 was part of a project that began in 1992 and while it was a joint Pakistan-China development project China supplied most of the money and did most of the work. China, however, does not use the JF-17, only Pakistan. That’s largely because the JF-17 is assembled in Pakistan, although over 40 percent of the components come from China or Russia. The project has gone through several name changes (FC-1, Super 7) and was never a high priority for China. The 13 ton JF-17 is meant to be a low cost ($20-30 million) alternative to the American F-16. The JF-17 is considered the equal to earlier versions of the F-16, but only half as effective as more recent F-16 models. The JF-17 uses the same Russian engine, the RD-93 that is used in the MiG-29. The JF-17 design is based on a canceled Russian project, the MiG-33. Most of the JF-17 electronics are Western. The JF-17 can carry 3.6 tons of weapons and use radar guided and heat seeking missiles. It has a max speed of Mach 1.6, an operating range of 1,300 kilometers and a max altitude of 17,000 meters (55,000 feet). Even with these Block III upgrades and claims of downing a MiG-21, the JF-17 is seen as second rate and more of a vanity project by Pakistan than anything else.

February 25, 2019: Turkey is the first Moslem majority state to openly criticize China for its treatment of the Uighur, Kazakh and Kyrgyz Moslem Turkic Moslem minorities in northwest China (Xinjiang province). China responded with threats of severe diplomatic and economic penalties for Turkey. China closed one of its consulates in Turkey and announced a list of potential economic sanctions. Turkey stepped up in this subject mainly because it has been trying to establish itself as “protector” (and leader) of Turkic people everywhere. The move against China seems a logical choice for Turkey, although Turks opposing Chinese power is a situation that has existed for centuries and the Chinese always eventually come out on top.

Off the Chinese coast, two U.S. Navy ships (a destroyer and a replenishment ship) passed through the Taiwan Strait (the waters between Taiwan and the Chinese mainland) as a form of FONOP (freedom of navigation operation). This was the third Taiwan Strait FONOP since mid-2018 where the passage was publicized. Until the 2018 FONOP such trips through the Taiwan Strait (which American warships do regularly) were not publicized, something the U.S. had been doing since 2007. The renewal of publicizing these movements annoys China which responded by having their own warships following American warships passing through the Taiwan Strait and increasing Chinese naval ship patrols around Taiwan.

February 20, 2019: China completed five weeks of unannounced naval and air exercises in the South China Sea. This exercise was actually something of a wargame with most of the operations between a red (Chinese) and blue (enemy) force. Several destroyers and an amphibious ship as well as many aircraft were involved. One of the warships had a Strategic Rocket Force detachment on board, apparently to test the ability of ships to supply target data for ballistic missiles capable of hitting moving ships. These forces were involved in what was apparently a simulated battle for portions of the South China Sea.

February 19, 2019: China quietly imposed a two-month ban on foreigners visiting Tibet. This is not an unusual move and occurs at least once a year, but for shorter periods and with more publicity. News of the ban got out when so many travel agents were quietly told that they could not get anyone into Tibet until April 1st. Since the Internet makes it easy for news like this to spread and be correctly interpreted it became apparent that this was all about the 60^th anniversary of the last major Tibet rebellion against Chinese rule. Can’t have foreigners seeing that sort of thing. Some foreigners can get in but they need a special permit and that is only available to those known to be staunch “friends of China.” The resistance in Tibet is different from what is going on in nearby Xinjiang province. The Turkic minorities there (Uighur, Kazakh and Kyrgyz) are Moslems and are seen as more of a threat than the Tibetans (who are Buddhist). Nevertheless, China is installing the same “Big Brother” video and electronic monitoring systems that in Tibet after noting the success of this tech in Xinjiang. Tibet is also getting more prison/reeducation camps were uncooperative Tibetans can be convinced that resistance is not an option and those who do not cooperate suffer for it.

February 18, 2019: China is seeking to buy all or part of key Ukrainian defense manufacturers in order to improve weak areas of the Chinese defense manufacturing capabilities. One key area is helicopter manufacturing and Ukraine has a firm (Motor Sich) that is a world leader in building helicopter engines and other components as well as turbine engines for warships. Ukrainians, in general, are not willing to see what many consider a national treasure become Chinese owned. China has been buying components from Motor Sich since the 1990s and wants to get access to its trade secrets and key personnel. The Ukrainians are wary and the Chinese are relentless. Russia is nervous as well because until 2014 Russia was also dependent on Motor Sich (and other Ukrainian firms) for some key aircraft and industrial components. As long as Russia is occupying Crimea and parts of Donbas those business relationships are blocked and Russia has not been successful in creating adequate Russian suppliers.

February 14, 2019: The military controlled government in Thailand is seeking approval for a $7 billion defense budget in 2019. The defense budget has gradually increased nearly 17 percent since the military took power in 2014 and the upcoming elections will replace military rule and try to cut the defense spending. Much of the increased defense spending since 2014 went to purchase weapons and equipment elected government refused to order. Since 2014 the military government has ordered three submarines from China, as well as dozens of Chinese tanks and other weapons. South Korean T-5o trainer/attack jet aircraft were bought as well. Purchases from the United States continued, including UH-60 helicopters. A week earlier the army ordered 39 more Chinese VN1 armored personnel carriers (for $2 million each) to replace elderly M-113 tracked and V-150 wheeled models. This is in addition to the initial 2017 order for 34 VN1s. China has been developing new wheeled armored vehicles since the late 1990s. Until recently, these were all based on Russian designs. The ZBL 09, however, borrows more from the West. The Thai military defended the purchase pointing out that the VN1 was cheaper than comparable Western vehicles.

February 11, 2019: The U.S. Navy conducted its first FONOP in the South China Sea for 2019. This one took two American destroyers within the claimed territorial (closer than 22 kilometers) of some of the Spratly Islands. China issued warnings and accused the Americans of troublemaking. The last FONOP was in November, which was the fifth one for 2018. Since 2015, when the Chinese South China Sea claims became a major issue, the Americans have carried out fifteen FONOPS in the South China Sea. By early 2019 China had moved more radars and EW (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 last 2018 FONOP was near several of the Chinese occupied islands in the Paracels. These islands had long belonged to (and been occupied) by Vietnamese. China took the Paracels by force in the 1970s. In 2012 one of the Paracel islands (Woody Island) was declared the center of Sansha, a new Chinese municipality (city). Sansha is actually Woody Island and dozens of smaller bits of land (some of them shoals that are underwater all the time) in the Paracels and the Spratly Islands to the south. In fact, the new "city" lays claim to two million square kilometers of open sea (57 percent of the South China Sea). China continued its policy of not interfering with FONOPS but does send warships to follow the foreign ships. 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. Then there is the preferred Chinese method of swarming around the intruder with commercial, coast guard and even navy warships and combat aircraft. This has included causing collisions (often just “bumping”). China does not want a war with the United States, 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 CCP control. What China has demonstrated is a willingness to do everything short of war, especially if they can remain able to claim victim status.

China announced a foreign aid project that will benefit both Afghanistan and Pakistan. China will pay for the construction of new border crossing facilities at the two main crossings; Torkham in eastern Afghanistan (via the Pakistani the Khyber Pass) and Chaman in the south (Baluchistan.) The new facilities would contain modern rest areas for people waiting to cross (especially drivers of trucks) and these amenities would include refrigerated warehouses for perishable cargoes (like fruit and vegetables) delayed at the crossings.

February 7, 2019: In northern Burma (Kachin State), some 10,000 locals held a very vocal protest against the Chinese Myitsone dam project. This is a very visible response to the Chinese ambassador, who visited Kachin State at the end of 2018 and bluntly told local officials that if China were not allowed to resume work on the $3.6 billion Myitsone dam project there would be serious consequences for Kachin state and Burma in general. After the visit, China reported that the ambassador found most people in northern Burma did not oppose the Chinese projects. The reaction in northern Burma was to accuse the ambassador of ignoring reality.

The dam project was the result of studies done in the late 1990s to develop the border areas and control flooding. Originally scheduled to be operational by 2017 the Myitsone project has been shut down since 2011 because of corruption charges (largely true) and armed resistance from local tribal rebels. China was always willing to make concessions to save the dam project but has been unable to agree with Burma on terms. Meanwhile, conditions in China have changed. Originally China needed the 6,000 MW of electrical power generated by Myitsone and 90 percent of it was going to China. But in the last few years Chinese economic growth has slowed and with that the need for additional electric power. Actually, there are now electricity surpluses in parts of China bordering Burma and the Chinese have been offering to export some of that electric power to northern Burma (which still has an electricity shortage). Because of this many similar Chinese development projects in northern Burma (other dams, new mines and lots of road and bridge building to support it all) are no longer as important to China.

Burma is willing to let Chinese development projects to go forward in the north as long as there are minimal corruption and misbehavior. That means compensating the local landowners (mainly tribes that have been in the area for centuries) fairly. China, however, wanted more than just the electrical power and profits from these investments. China also wants some diplomatic assistance, apparently regarding North Korea, the South China Sea and other sensitive matters. China has been willing to negotiate with Burma and compromise on its unpopular economic activities, mainly in the north. China is also offering good deals (low prices) on modern military equipment and that has the Burmese military leadership interested. Meanwhile, the border tribes have to go along with any Chinese settlement and the tribes don’t want the Burmese troops to have more effective weapons. The Kachin tribes don’t trust the Chinese or their own government.