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CHINA - Risky Business Part II

China has a rather small ruling elite. They have a party congress, but that is primarily for show. The real decisions are made by a relatively few decision makers guided by commissions which are also made up of a relatively small number of players. One of the more powerful of these is the Central Military Commission (CMC). In 2004, the CMC expanded from eight members to eleven. These new members are the commanders of the Chinese army, navy and air force. This change has resulted in the military being brought directly into the arena of high-level decision-making. Imagine George Bush expanding his cabinet to accommodate the leaders of the U.S. Army, Navy and Air Force. Such a move would reverberate throughout the world with concern that the U.S. was planning for war. Both friends and foes alike would decry such a move and the airwaves would be filled with talking heads questioning the President’s motives. Yet this is pretty much what China has done and the world has not muttered a peep.

On July 14, 2005, in an interview with foreign correspondents, General Zhu Chenghu, a leader in the PLA and Professor and Dean at China’s National Defense University Strategic Defense Institute, an institute under direct control of the CMC, told reporters that, in his opinion, China should not hesitate in attacking the United States with nuclear weapons if it comes to the aid of Taiwan during a Chinese attack of that island. Zhu stated that, “China was willing to sacrifice every city east of Xian” in a retaliatory nuclear strike by the U.S. He also warned that hundreds of U.S. cities would perish in the nuclear exchange.

These comments by General Zhu resulted in the U.S. House calling for his ouster from the PLA. But China insisted that Zhu was only speaking his own opinion and the furor caused by the comments seems to have evaporated from the mainstream U.S. media as quickly as a garage sale advertisement. Zhu’s statements did get some of the few remaining old “China hands” at CIA headquarters in Langley to perk up. Traditionally, Chinese generals who publicly voice their own opinions have a habit of disappearing. Zhu’s comments are thought to perhaps belie a deeper, more widespread opinion within the Chinese military. Certainly, Zhu didn’t pick the city of Xian out of a hat. It may be assumed that the Chinese military has given thought to the consequences of a nuclear exchange with the U.S. and that some may consider the loss of all eastern cities as an acceptable outcome to a nuclear war they believe they will ultimately win.

Unfortunately, since 9/11 American intelligence has been primarily focused on global terrorism. Many of the best and brightest in the intelligence community have moved from the old Russian and Chinese intelligence desks to chasing terrorists. That’s where the money is being allocated and that is where careers can hit a fast track. Despite Zhu’s statement and other signs of a clear and present danger, U.S. intelligence activity targeting China is sorely lacking and Congress isn’t interested in funding increased spy work against one of our most important trading partners. This comes despite the fact that the Secretary of Defense has told Congress he doesn’t have much of a clue as to what’s going on in China.

A telling and important result of Zhu’s comments has come from the Chinese blogs that appeared following his comments and the U.S. House’s call for Zhu to be sacked. Chinese bloggers responding on the Internet were split down the middle as to their opinions regarding the suggested fate of Zhu. Half seemed to call for his execution and half seemed to praise him as a hero, agreeing that the sacrifice of half their country would be worth the price of destroying the great evil that is the United States. One Blogger went so far as to suggest that with China’s 1.3 billion population, even if they lost 200 million in a nuclear exchange, they would still have over one billion people, millions of whom could immigrate to the defeated U.S. and “liberate” the nation. This thinking falls in-line with traditional communist Chinese teaching that mandates self-sacrifice in the interest of future generations.

Authors Note: Chinese authorities monitor and censor the Internet and have been reported to use groups of agents to post on blog sites under fictitious names in order to sway popular opinion and/or confound the results of public polls. Therefore, accurate results of Chinese blogs cannot be verified.

The population of China has changed in the same way as that of the United States. Most World War II veterans of Mao’s Long March have died out and the vast majority of Chinese have known no Deity other than Mao all their lives. Mao’s Little Red book, which was distributed in the late 1950’s to every man, woman and child in China, is filled with the call to sacrifice one’s all for the sake of the homeland. To a lot of Chinese, living in a burned out bomb crater will only bring them closer to their beloved late leader, who lived in caves in the 1930’s, in order to bring them their workers paradise.

It is precisely these Chinese citizens that pose the biggest problem for China’s leadership and for foreigners who are investing their billions in China. It is also these types that could very possibly ferment chaos in China, forcing a crisis upon China’s leadership that could provoke a stumble into war. According to the DOD report, 55 thousand riots took place in China in 2004. According to Fisher’s report, the number of riots taking place in China in 2004 was 74 thousand. Regardless of what number is accurate, it seems amazing that Western media has not spent more time reporting on these riots. If a single riot occurred in the U.S. or Western Europe, it would be front-page news throughout the world. But here we have a country with at least 55,000 riots being staged in a single year and there is relatively little attention being paid to their occurrence and even less analysis of their causes.

The little analysis of these riots that has been done, including the U.S. Secretary of Defense’s, addressed in his report to Congress, seem to characterize these events as nothing more than the manifestation of resentment from China’s lower classes toward the growing wealth of new entrepreneurs. Also cited, but not corroborated by Chinese officials, is the near institutionalized corruption of Chinese bureaucrats and other government officials.Although these reasons are persuasive and, in part, supported by official Chinese statements, they are also simplistic. To be certain, millions of Chinese who spent their lives believing they were all comrades have awoken to find that today, there are “comra-gots” and “comra-nots”. Naturally, one can anticipate much resentment from those Chinese who feel they were left out of the new economy. But what seems to have been overlooked by Western analysis, and by the DOD in particular, is the deep commitment and love held by the Chinese toward the late Chairman Mao and the communist ideal he espoused. Chinese resentment runs far deeper and is targeted far higher than seems to be perceived by the West. Economic reform in China has followed far in the wake of Mao’s death. Many Chinese believe that China’s leadership has hijacked and corrupted the communist party. This resentment and nationalistic feeling is brewing among the masses and it remains to be seen if China’s present leadership can continue to control this segment of their population.

One thing we can safely predict is that if the population does rise up against its leadership, their fingers will not only point to their own heads of state, but also to the very symbols of the capitalist evil they have been taught to loathe. Foreign businesses will undoubtedly be attacked. What makes this a safe prediction is that it is exactly what has transpired in China in the past. Foreigners and foreign business concerns have historically been targeted in China during popular uprisings. The Boxer Rebellion is one such example. Chinese leaders, caught between a noose and an angry mob, have historically been willing to admit they were beguiled and/or victimized by barbarian charms, turning the wrath of their pursuers against foreign interests until they could slip free of the noose. Foreign business leaders seem to overlook such historical events and fail to analyze the current sociopolitical risks inherent in China. This omission can be attributed to the fact that conducting business on a global scale is something new to most foreign businesses. While much effort will go into an economic analysis of doing business abroad, businesses don’t generally retain political or military analysts to assist in making such decisions. However, the fact that foreign governments and especially the United States, seem to be overlooking the risk inherent within China is something beyond comprehension.

To a certain extent, the situation in China today mirrors the situation in Iran in 1978 when the Shah was overthrown and radicals seized the government. At that time, the Shah was attempting to change Iran’s agricultural and industrial base and the people were given high expectations for their future. When the results proved disappointing, the Shah was toppled. There are factors that distinguish differences between Iran and China. China suppresses religion and therefore they do not have radical clerics that can conspire against leadership. But Iran had its secret police and did suppress dissent in the same way as China does today. Despite this fact, when the people arose, Iran’s government fell fast and hard. Following the fall of the government, the mob turned their attention to the symbols of what they felt corrupted their former government – the United States.

The nationalistic fervor of three-quarters of China’s population still living in poverty is the fuel that can burn China to the ground. What is presently lacking for such an event to occur is nothing more than an ignition source. Unfortunately, one doesn’t have to look far to find any number of such potential sources. The military in China could certainly act as such a catalyst. If frustration grows among military leaders to resolve issues such as Taiwan and China’s leadership shows a weakness in restraining their military leadership – as they may have done with General Zhu’s outlandish remarks – military leaders may feel emboldened to move against China’s Central Party leadership, inflame national furor and strike at Taiwan.

If the economic structure of China’s economy proves to be unsound, a collapse could occur that triggers a backlash against China’s leadership. We don’t really know much about the economic structure of China. They steadfastly refuse to open up the books to world revue. Recently, under intense pressure from the U.S., they have set upon a plan that will eventually allow the Yuan to float freely in the currency market. Although this will not be fully accomplished for several years, the result could be higher inflation, which could stymie economic growth and move the Chinese economy into recession. If such a scenario unfolds, Chinese leadership could look to shift blame elsewhere and divert public opinion by embarking on military adventurism.

Another scenario might have China being incapable of sustaining its economic reforms. In this regard, the United States has already assisted in making this scenario more plausible.

In 2003, China became the second largest consumer nation and the third largest importer of oil. It is manufacturing that is fueling China’s economic change and it is oil and coal that fuels those manufacturing plants. In order for China’s leadership to maintain control and quell discontent, the economic reforms and economic growth of China must continue. If China is unable to sustain economic growth, the discontent now being exhibited in tens of thousands of riots, may fester until it spontaneously ignites into a full-blown popular uprising. This is one reason why China has moved globally to find and secure oil futures for its economy. Recently, China’s nationally owned oil company, CNOOC, placed a bid to purchase the U.S. oil company, UNOCAL. This bid set off a tempest in Washington with legislators moving to block the purchase for “national security” reasons. Eventually, under pressure from Washington, CNOOC dropped its bid for the oil company and Chevron moved to purchase UNOCAL for about $700 million less than what was being offered by China. A lot of legislators in Washington slapped themselves on the back when China backed off from its bid, but in reality this was a major blunder by our legislature.

Major wars don’t erupt over one single big issue. They erupt over a series of small things leading to a flash point. This move by the U.S. legislature may have been a mistake, moving us closer to such a flash point with China. Not only China, but other nations throughout the world also view the actions of the U.S. legislature as hypocritical. While the U.S. advocates denationalization of other countries’ industries and opening up their markets to U.S. companies, to prevent China from purchasing a U.S. Company simply didn’t make sense to the rest of the world. While the U.S. pursues a policy with China encouraging that nation to accept U.S. businesses, to spurn their move to acquire a U.S. company was unfathomable. Chinese leaders, who have pursued peaceful economic reform, may have lost face. The U.S. legislature, fueled by the greed of special interests, may have handed Chinese militarists another argument for the use of force.

It is important that we assist in China’s economic development. Granted, China should not reap all of the benefits that we share with other nations until it guarantees freedom for its own people and demonstrates through transparency, that it does not pose a military threat to the rest of the world. If we enter into agreements with China, those agreements should entail a two-way street. We cannot dictate terms nor should we intentionally stymie their progress. But we must be vigilant and wary of China’s intentions. They are not a free society and they do not view the United States as a friendly nation. They view us as a way to an end. What that end is, we don’t know. But the prudent course for the U.S. is not to isolate China, nor is it to open our doors completely to the eyes and ears of their military industrial complex. U.S. business must be wary of what they offer China and what knowledge they impart to China. China has a long way to go and the path is filled with landmines. Assisting them on that path is important, but not at the expense of blowing up our own economy nor at the expense of helping to create a military superpower that will turn against us in the future.

Investments in China by foreign business and U.S. business in particular will undoubtedly increase in the future. Today, “Made In China” labels are found on everything in America from the clothes on our back to components in our aircraft. As more industrial manufacturing shifts to China from the U.S., our dependency on China and Chinese manufacturing will continue to grow. Whatever the future has in store for China, the fate of the United States will be held in the balance. China is not a third world country that the U.S. can use and dispense with when economic conditions make it more profitable to move on. The lack of understanding China and the Chinese people demonstrated by leadership in the U.S. and the apparent failure of U.S. intelligence to provide better information to our leaders must be immediately addressed.

When it comes to the average American investing in China or in the U.S. firms that have come to rely on China for the manufacture of their products, the economic risk is also considerable. If the average American invests in mutual funds or has a 401(k) account, it is likely that part of their money is invested in China. So entwined is the U.S. economy becoming with China, a hiccup there can result in a real stomach-ache here for investors.

Above all else, Americans must come to terms with having another economic giant living in the neighborhood. It is projected that China’s economy will grow to $6.5 trillion (U.S.) in the next 15 years. America’s economy is projected to reach $22.5 trillion in the same time frame. But serious questions surround such rosy predictions. Is there enough oil in the world to feed two monster economies? Can the United States accept world power sharing? Can the U.S. consumer learn to live with less? Can American’s learn to share the world’s natural resources? Can two giant military powers live together, without ultimately coming to blows?

Like China, we will have to bide our time, wait and see.

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