the perils of the Chinese Communist party

[HelloDollyLlama]

China had good government -- once


Ironically, China was the first state to establish well-run governments, way back in the day. Emperors could be criticized to their faces -- sometimes. The official Confucian ideology provided for an official governing class; competitive exams were open to all classes. Officials were monitored and regularly transferred to reduce corruption. As a result, China prospered: feudalism scarcely existed, technology advanced, farmers owned their own land, a superb system of roads and canals was built, crop yields outpaced Europe, and there was famine relief, cheap loans and low taxes.

Then Europe caught up. While the Chinese system was finally degenerating into corruption and feudalism, European warfare and competition drove taxes and then government institutions; long-distance warrior-traders needed to form companies and use banks; the technology race began.

The demand for Chinese goods created a trade imbalance with Europe; Britain forced the Chinese to buy opium, and the humiliations continued as one European power after another came in and carved China up. The despised Qing dynasty faced the Boxer rebellion and then the forced abdication of Pu Yi, immortalized in “The Last Emperor”.

The collapse of the Qings left it all up to local barons, like feudal Europe: poverty, violence, corruption, oppression. They had under-the-table business deals and finance instead of banks and companies; no industry or modern infrastructure. Sun Yat Sen got nowhere in solving China’s problems. Chiang succeeded only in uniting the warlords; and then the Japanese showed up and trashed the whole place.

The Chinese Communist party


The Communist party sold itself for years as a permanent revolution against capitalist oppressors, class warfare, and the aim of devolving into a stateless utopia. The premise looked sillier and sillier as the years dragged on. Deng came along and opened the door an inch: a smidge of capitalism heavily clogged up with state-run enterprises, mild criticism of Mao, preaching socialism instead of Communism, bare-bones institutions, welcoming businessmen, and no democracy – but the underlying dogma of party control is the same, and it is totally useless for China in the 21st century. They are trying to shift their sheet music away from communism to nationalism.

But even 30 years after Mao’s death, Hu needs the party hardliners, who think reform has gone too far and don’t want to go further – for them it is no longer about standing up for communism, it is about retaining control.

Their only political pitch is – in 25 years we built a $2 trillion economy, so why is anyone complaining? To respond to this, let me refer to a long-dead theatre critic, who once wrote a scathing review that went something like this: “I have seen your play, and there are parts that are good, and there are parts that are original. But the good parts are not original, and the original parts are not good.” The modern geopolitical version would go like this: “You have an economy that is mostly state-run and very vibrant. But the vibrant part isn’t state-run, and the state-run part isn’t vibrant.” The growth is happening in spite of the party, which has no clue. They are textbook communists looking on, bewildered, as capitalist progress happens in front of them, like the family dog watching a ten-year-old doing arithmetic. They are not leading China: they are the biggest threat to China’s future, a malignant parasite.

They will preach reform and use corrupt officials and leaders of state-run enterprises as scapegoats, but that will only get them so far. If they insist on vise-tight control of the country, they must take responsibility for the thing that do not work.

Corruption in China


The official Chinese media actually talks about political reform, but it won’t happen without a struggle. There is virtually no oversight of local governors or businesses, particularly in rural areas, although government tried to tighten the reins in 1993. The spread of corruption interferes with both public and private firms. Corruption costs perhaps 14 percent of the GDP by one estimate.

For this reason, a lot of things which are essential to fuller integration into the international economy are lacking.

The legal system is expanding the number of cases it hears, but it is also broken and completely politicized. They made some progress in cleaning things up in the 1990s but backslid at the turn of the century. The head of the judiciary, a reformer, was replaced with a party hack. In one year almost 800 judges went on trial for corruption, so you can imagine how many got away with it, and half of the decisions of provincial courts are not even enforced. The unprotected are mistreated, with arbitrary detentions, and arrests and beatings of lawyers who defend politically unpopular clients.

They made progress on commercial and administrative law, but not much.
Some say as much as an eighth of the GDP comes from counterfeit goods; there is also trouble with quality control, and efforts to deceive inspectors. Food contamination is a growing problem. There are big problems in the pharma sector, where western firms get precursors and ingredients; it may reach the point where U.S. and European drugmakers, fearing lawsuits, regulators and bad press, will begin to reject ingredients from China. Without the rule of law, problems such as product safety and intellectual property rights cannot be solved.

Next, modern (let’s not call them western) business practices: sensible corporate management, anti-trust rules, real competition, financial oversight with independent auditing. This would also help government itself, with sensible investment and development, avoiding overcapacity etc.

The banking sector may be an important bellwether in this regard. During the Asian financial crisis it emerged that Chinese banks had huge amounts of non-performing loans on the street, perhaps $600 billion worth, as banking and accounting rules were set aside. China began tightening controls, putting regulators through more testing. But now with a recession on, pressure is mounting to loosen the reins again and use the banks to finance the stimulus effort; China could eliminate the CBRC regulations or even the whole CBRC. That of course is exactly how the U.S. found itself in its own dilemma.

Next, consumers and investors: they need property rights so they can borrow on the collateral and stop worrying about illegal land seizures, and they need to be able to buy enough stock to have a real voice in how firms are run. It can’t all go to the party poobahs.

Next, there are issues which the government absolutely will resist: free speech, free media, free debate, freedom of association, free election, and trade unions. You could also put improvements in education in this category.

Next, there are other aspects which we have addressed elsewhere: the need for a pension system, and sound trade and environmental policies.

Ground zero for China’s corruption problems is in their state-owned enterprises (SOE’s), which make up half the national GDP. In the 1990s they tried SOE reform but millions lost their jobs so the effort was curtailed. In 1997 China loosened controls on the SOE’s and funnelled a lot of their saved money into them; most of Chinese lending goes to the SOE’s. This happens even though the firms have proved themselves to be inefficient, unprofitable and corrupt; the government conceals the number of SOE insolvencies. The corruption only gets worse when party members get involved the SOE’s, and the businessmen join the party: until 1998 the army and other government organs also ran businesses with little oversight. Instead of shutting down all the SOE’s, the government has chosen to build a real economy around them rather than shut them down or reform them, possibly with the aim of aging out the SOE’s by attrition, but that could take an awfully long time.

 

[HelloDollyLlama]

Unrest in China


Tiananmen wasn’t just Tiananmen. There were demonstrations in almost two hundred cities. The party got lucky: the protesters were divided, and China wasn’t as hooked into the international economy so there was less vulnerability. Also the military played ball: Deng, a war hero, had the credibility to order the troops to fire.

The Chinese people remember Tiananmen; they know the party that perpetrated it is still in power and could do it again. And the troubles are still coming. Already they have had so many labor strikes and protests that the state-run media realized it was futile to try to conceal it. The number of protests jumped from 10,000 in 1004 to 74,000 in 2004; in the mid-2000s three million a year took part in protests and almost a million a year took part in strikes. People have been predicting serious trouble for years, but economic growth helped keep trouble at bay; now, with factories closing, protests are growing. Workers are protesting in the beating heart of the Chinese economy, the Pearl River delta, the source of one third of all Chinese exports. Government offices have been trashed, policemen attacked.

The party cannot relieve the political pressure with elections, because it would kill the party; they can’t allow controlled expressions of popular sentiment, because every time they try it, there is an explosion of protest.

And more trouble is coming: they have 250 million internet users which government can control effectively now, but for how long? The government has banned VOA, the BBC, and anyone who gets too chesty on the Tibet issue; they just banned the New York Times also. They loosened restrictions on the internet during the Olympics, then put up the gates again. The Chinese people also have 600 million cellphones, potentially a great revolutionary tool.

The Chinese leaders are probably a better bunch than the generation that preceded them. The cultural revolution essentially decapitated their entire professional class, and the old-timers were generally true believers, or too terrified of Mao, or his memory, or just not very good leaders. The new bunch still has no skill at western-style politics and less familiarity than they really need regarding the people they rule, particularly in the rural parts, but they are thoughtful and pragmatic. The Chinese invented the concept of qi, the interaction of multiple forces, rather than linear cause/effect; that sort of complex problem-solving is going to be awfully handy.

They know the political dangers; they are obsessed with maintaining control. The Chinese president indicated that the party and its leaders could lose credibility and the capacity to control the situation, leading to social unrest. They cannot contemplate loosening controls on the media or banking (foreigners can buy bank stock but they can’t run the boardroom), or allowing unionization or democratization.

The problem is that they cannot see a path out of the woods – a way to let the steam out of the kettle slowly and safely -- and are unsure how to deal with the unrest. They are, however, trying. They are studying the prospect of political reform, and sending people to Sweden and Japan to study how capitalist democracy can work in what is essentially a one-party state. They even put on a television series praising the western system of representative government, examining efforts by both Roosevelts to control capitalism, and stressing the need to seek progress through economic development and innovation rather than aggressive militaristic policy.

Time is also a factor. Economic change is slow; they would need to figure out what they want to do both economically and politically, launch it pretty soon, hope they guessed right, mostly – and make it all happen before the situation on the streets takes on a life of its own. Ironically, economic prosperity may accelerate political trouble: some point out that when a developing nation develops a middle class, the first thing they reach out for is democracy. Fareed Zakaria pointed out that essentially all countries which reach that level go that way, except Singapore and some of the oil states of the Middle East.

We must not be tempted by the example of the fall of the Soviet Union, which went better than anyone had a right to expect: it all could have gone much much worse. In 1991 all Russia really had to do was swap one group of corrupt oligarchs for another. China now must build an entirely new economy, and they have no playbook to work from. They playbook they used to get here – liberalizing with more private enterprise, stock markets, foreign investment, trade, industry, seeking a balance between capitalism and socialism, encouraging people to explore capitalism but not democracy, and banking cash reserves – will not help them much, in trying to solve their current problems.

If they do survive a leap to democracy, or something like democracy, it might take the form of a mixed system with popular participation under the hierarchy of a party which would let go of some of its power. Ideally some of the hardwired patronage networks would need to be unwired, but a certain level of corruption may be what greases the skids in the right direction. In addition to the more obvious hazards of life in a democracy, the government will also have difficulty with unexpected things; for example, dictatorship made it possible for the government to invest a ton of money on education even though the payoff is a long way down the road – in a democracy the people want to see a quicker return on their investment.

Fareed Zakaria suggested that China’s rise as a world power will continue even if the political situation blows up. He pointed out that after the Bastille fell, France continued to grow economically through a comical series of republics and empires.

Rural China


Further down the road, more trouble is brewing out west. The gap between the rich urban east and the poor rural west will become politically unsustainable. The east pulls gas and electric power out of the west, and although they talk about reaching out and spending government money out west, it never goes very far; that includes support from banks. Trade among provinces is difficult. The local rulers in the west, left to their own devices, are very corrupt, and the locals are getting very little in the way of government service. Beijing has little control out in the boonies.

Rural communes have already taken the initiative and de-collectivized themselves: productivity shot up, as did innovation. Then they did the same with local factories; they had to use legal evasions because private firms were not allowed to have more than eight people or borrow from banks. This happened most in the south; Mao didn’t build much industry there because he expected it to be invaded. The rural areas also send people to the industrial areas to work, which relieves some rural poverty but causes problems in the cities.

 

[HelloDollyLlama]

Economic troubles


The crisis which began in the U.S. housing sector has now spread to many sectors in many countries, China included. Like the U.S. in 1929, China is succumbing to real trouble despite their gigantic cash reserves and their huge trade surplus. They were partly protected from external financial troubles during the Asian financial crisis on the late 1990s, but now they are much more integrated into the global economy, with exports that are at twice the level of India’s, so they are more vulnerable.

Recession in the U.S. means demand for Chinese goods goes down. Firms are loaded with debt; thousands of factories closed in southern China even before the fiscal crisis; half their toymakers went bankrupt; automakers want protection from foreign competition. The government tried to prop up their markets but the Shanghai market dropped seventy percent and a hundred million stock investors are in a state of shock. Also, they will have infrastructure problems – overcoming their long supply chains and transport costs. Also, they are making little progress on either productivity or innovation: most of their research scientists are working in government labs, they have almost no track record in setting up their own brands or products as the Japanese have done, and the government is still giving privileges to foreign firms which Chinese firms don’t get.

Even the things they did well, to get them where they are, are not forever. The forces of recession and competition from other developing countries are reducing their competitive advantage in low-skill industries like clothes and toys.

Employment has gone from bad to worse: as it was, they needed to find millions of new jobs each year, and now the task has gotten even harder. Millions are out of work, particularly among factory workers and college graduates – and the middle class as a whole is upset too. Their whole reason for economic success is cheap labor, but it’s unskilled and the government doesn’t spend as much on education as Mao did. Health care is also declining, although nutrition is doing alright.

Another inhibitor to growth: much of the recent growth occurred when foreign firms moved production to China, but now most of the firms who want to go that way have done so. Outsourcing has limits as a labor strategy. So their growth rates are even less likely to sustain themselves.

Two poor choices by the government are turning China inside out: the one-child-per-family policy, and the refusal to set up a national pension system. Because government cannot or will not set up a pension system (it would involve a tax increase), Chinese couples need a son to support them in their old age. Add the one-child-per-family policy, and parents are aborting, abandoning or murdering their daughters, to retain their chances of having a son. Also, the pension issue means that the Chinese save much more, which means they invest less in the economy: they don’t buy as much in the stores or invest as much in the stock market, depressing the economy further. Also, their level of savings is increased by the fact that they have no system of land registry so they can’t use property as collateral for loans. Also, the one-child policy is setting up more problems down the road, as the surplus of forty million unmarried men jacks up rates of prostitution, rape, forced marriage, and reducing women into commodities.


China can’t solve our problems and their own too


We are at a severe political disadvantage vis-à-vis China because we have borrowed hundreds of billions from them, to finance our deficits. It is hard to press them on political issues while we are also asking them for money. If they were to dump our financial instruments or slow down their purchases of them, it would hurt both countries, but even the threat opens us up to economic and political blackmail. In 2007 some Chinese officials were talking openly about using this sort of blackmail, but in 2008 they were acknowledging that a financial pullout would hurt both countries.

We got a vivid lesson in all this recently, when Britain asked China to donate money to the IMF, in exchange for an increased voting share – and then backed away from its previous recognition of Tibet ’s autonomy, and even apologized for not changing their stance earlier, although they still call on China to accept Tibet ’s autonomy. This is clumsy because it also affects China-India relations. But China handled it clumsily too, bragging openly that Europe is backing down from a fight due to the current fiscal crisis. How smart are these guys, really?

The problem is that now, thanks in part to us, the Chinese have their own economic problems. There are two ways the Chinese can try to alleviate them. The first is to encourage more domestic consumption: the world cannot continue to absorb all their exports, but perhaps China itself can. Although they are hustling to create millions of new jobs each year, they haven’t yet turned these people into consumers. The Asian fiscal crisis of a decade ago, and the erosion of the socialist safety net, encouraged the Chinese to save rather than spending. There is really no comparison to the US consumer market: to say nothing of the disparity in wages, in China people aren’t even purchasing homes, let alone $300,000 homes; shifting from a primarily export economy to a primarily consumption economy will simply take time. Perhaps those 250 million internet users will learn the joys of e-commerce. The government may also repeal laws which were passed to encourage exports vis-à-vis consumption. One bright spot: Chinese tourism spending is skyrocketing (or was, before the crisis). The world needs not just China but all the new economies to spend more.

The second way to get things back on track is government spending. The Chinese President, flush with mountains of cash and a budget with much more black ink than ours, will spend more than two trillion dollars on roads, railways, airfields and the power grid; there is plenty of work to do in the transportation sector.

And that takes us back to our original problem: it was bad enough when we had to go to the Chinese to borrow billions to finance our debt. Now they’re telling us – sorry, we can’t finance our recovery and yours too. China and the U.S. need to work together to solve international economic problems, but to some extent it’s every man for himself. We are not the only ones holding out a tin cup: the whole world wants China to use its currency reserves to save the world, put money in the IMF and so forth.

We need them to dial back the value of the yuan: the Chinese had allowed the yuan to creep up over the last three years, but after the crisis the People’s Bank of China pegged the dollar/yuan rate very high, to spur Chinese growth. The currency then took a nose dive, closing the Chinese market even more. That might have been their signal to Obama: don’t get in our faces. With a weak yuan the Chinese can barely afford food, to say nothing of consumer goods. Obama was among the Senators to support a bill imposing restrictions on imports from countries whose currencies are out of kilter. Fiscal protectionism could ensue, wherein foreign investors could really hurt the Chinese banks by dumping the yuan and pulling out of the investment market.

Trade: again, the Chinese are going to tell us – sorry, we have our own problems. For twenty years we have given away our manufacturing jobs and the Chinese, like the rest of Asia , simply hoovered them up. Now they have an incredibly strong trading position. We want China to open its markets, and lower tariffs and other barriers as their WTO accession agreement stipulates; in the 1990s they did cut tariffs but now they have tacked on some short-term export subsidies. We also want them to meet WTO standards on intellectual property rights, and do better on product safety and labor issues.

American businesses have finally joined labor in pushing for protectionism, on the argument that cheap labor is skewing the market; they forget that labor only comes to a small part of the cost of goods anyway, and that if Chinese goods lower some U.S. salaries, they also lower prices for the goods those workers buy. Meanwhile the Europeans have also warned the Chinese that if China keeps dumping huge volumes of production out into the international market as a safety valve to solve their over-capacity and other problems at home, just when everyone else is trying to get their own products on the street, then a wave of protectionism could indeed begin.

The Chicken Littles of the world should remember a few things. The Chinese government knows that whatever hurts us hurts them: their vice president was yelling at our Treasury Secretary to get our fiscal house in order, because they don’t want us to go down. The Chinese know that we are all in this together, so getting them to work with us on trade, carbon, arms proliferation and everything else should be workable. They know they benefit greatly from their relationship with us, and so do we: among other things a close relationship will help bring about the Chinese transformation everyone seeks. And remember that the Chinese Communist party did in fact reinvent itself thirty years ago under Deng, so hoping for a reprise is not entirely unrealistic.

China and the environment


Environmental issues will be an enormous part of our engagement with China for the next 20 years. Carbon is currently the big issue. China gets 70 percent of its energy from coal and opens new plants every year because coal is cheap. The pollution-related health problems are mounting. At the very least they need to make some positive commitment toward a strategy with the end state of meeting international carbon standards, but when the Kyoto process is reopened in Copenhagen this year, China will continue to be slippery, claiming they are doing all they can, using its economic clout to buy some time. They are in fact working with hydroelectric and trying to build new eco-friendly cities. If they put solar and wind farms out west, would that give the west political power, or would building a connective grid be too much trouble?

A related problem is the pollution closer to home, particularly water. Half the population cannot get clean water, and one third of the Yellow River, the water source for millions, is too polluted to use.

 

[HelloDollyLlama]

China on the world stage


The World Domination Quarterfinals ended sixty years ago when we beat Germany; in the semi-finals we beat Russia. Now it’s the finals: U.S. versus China. The winner rules the world. I hope someone has the good sense to hire a small army of Chinese linguists.

China’s quest for respect didn’t begin with the Olympics. For millennia they saw themselves as the center of human civilization, the Middle Kingdom; the rest of the world was filled with barbarians. A century and a half ago they were stunned to be humiliated by those very barbarians in the Opium War and the intrusions which followed; the Righteous Fists, the loss to Japan in 1895, the Versailles Treaty which handed territory to the Japanese without consultation with China, the Japanese invasion, the rape of Nanking – a century of lost face. To regain it they have been flexing their muscles in Korea and in border fights with India, Vietnam and Russia; they have blustered at the Japanese over the Senkaku Island which has oil reserves nearby. Hu Jintao does not share Deng’s reluctance to put China out there as an assertive power, and he needs the army to maintain power, which would explain why he his putting himself forward globally, wooing the generals, and giving them fat budgets.

China wants a seat at the table, and wants to see international systems rebuilt to their liking; they had little say the first time around in the 1940s. They also need the international economic system. We do want China to be a full partner in the major international organizations: the more we wire them into it, the fewer incentives they will have to wreck it. We don’t want to poke them in the eye and scare them off so that they make other, less savory alliances and give up on reform. Contrariwise we don’t want them gumming up the works, forging anti-American alliances with Russia and France, vetoing everything at the UN. On that front, proliferation will be a thorny issue: they provide nuclear technology, anti-ship missiles and other arms to countries such as Iran and North Korea. They see that as leverage against us. We need to make that a priority.

Provided they get the respect they feel is due, they are unlikely to take a confrontational stance on the world stage, at least not overtly or directly. They will become a great power, but quietly (unless challenged on Taiwan), ruffling no feathers; Fareed Zakaria predicted that they would not supplant the U.S. as the Number One power. They will think of long-term strategy rather than immediate gains. They will try to be the international good guy, as opposed to Big Bad Uncle Sam, so the U.S. will need to continue to market itself and its ideals. Because the prevailing philosophy in China, Confucianism, is not a religion at all – Confucius taught about society and knowledge, and warned people not to bother with the divine – the Chinese will not try to convert the world to their philosophy as America does.

The Chinese believe in relationships and trust, rather than laws and rules. They don’t grasp that laws and contracts are important, so their participation in international institutions will be a tricky business.

One way or another, the sheer immensity of China is going to change the world politically and economically as they become more integrated into the outside world.

They are already providing a lot of international aid, although they are probably playing their own regional geopolitical games while they do it. Some of their efforts might be shortsighted: they give Zimbabwe arms and political protection at the UN, and arm Sudan as well, something which the Africans might not appreciate in the long run. They helped in Afghanistan and provided aid in Iraq, and we will want help on more terrorism and crime issues such as computer crime and human smuggling, as well as WMD inspections in Chinese ports. Other issues: bird flu, AIDS and Darfur

The bad news is that a lot of people are worried about the rise of China. The good news is...that a lot of people are worried about the rise of China. In recent years the popularity of China has fallen in Russia, Japan, India and Europe. Many expect them to replace the U.S. as the dominant world power. And as we remember from our balance-of-power lessons, the next thing everyone will want to do is form an anti-China alliance; India, Australia, Japan and Vietnam might be interested. Europe, a key trading partner for China, would be important also: if America and Europe are not on the same page regarding relations with China, things could get sticky quickly, and the Chinese would be looking for a crack of disunity to exploit. The natural move would be a U.S. alliance with India, which possesses a military which is still a decade behind China’s but which also has less acute political and economic problems than the Chinese. The U.S.-India nuclear cooperation agreement may have been crafted with one eye on China. Just don’t get so close to India that we foul up our relationship with Pakistan and increase Pakistani paranoia. Tricky, isn’t it?

The Chinese military


The Chinese are configuring their military to fight our military. This is yet another area which will require a total overhaul of US strategic doctrine. Our current doctrine, such as it is, differs little from the nukes-and-overwhelming-firepower combo we were using fifty years ago, little of which will help in a strategic contest with China today. We outspend them militarily by roughly six to one, but we have the whole world to worry about while they focus only on their own front yard, and their strategic doctrine is quite low-tech, so the balance of forces is more even than one might think. As we learned in 2001 when they punched one of our airplanes out of the sky, they are not adverse to poking us in the eye, if they think we’re crowding them. They also have, or can obtain, asymmetric advantages such as cyber warfare which could disrupt US military deployments; they successfully tested an anti-satellite weapon in 2007. In the end they would prefer to use political or economic tools, rather than military tools, to get what they want.

In one of his moments of political lucidity MacArthur warned Kennedy not to indulge in a land war in Asia (Kennedy intended to get out of Vietnam after the 1964 election). We are very unlikely to get into a land conflict with China ’s gigantic army, so if there is a fracas in the western Pacific, it may happen at sea.

A key issue will be the Straits of Malacca and its route into the South China Sea, which carry more merchant traffic than Suez and Panama together, including eighty percent of China’s oil. Our navy – ironically built with a fair amount of Chinese money, which must drive them bananas -- is at either end of the strait, at the Changi base in Singapore and on Diego Garcia. We are there because we want to prevent any disruptions in the shipping routes, and because other Asian countries want us there, to keep China (and some other folks) honest. Also India has military facilities nearby on the Andaman and Nicobar Islands. If we do joint exercises with India, the Chinese will go insane, but generally, provoking them on the Straits issue is more trouble than it’s worth.

China intends to compete as a leading sea power, although they have a long way to go; it may occur to them to stop giving us money for our navy and spend considerably more on their own. They have no carrier so they can only project power so far. So far they have been relying on other navies to keep their sea lanes clear of trouble, although they sent two destroyers to Somalia to help with the anti-piracy effort. They have alliances with countries which can host their ships as needed: Pakistan, Cambodia, Thailand and Burma. According to a press report they have put a nuclear-missile submarine and other naval vessels at Sanya and Yalong Bay on the southern coast of Hainan Island; they have bought Russian submarines. One Chinese sub surfaced in the middle of a U.S. carrier group not far from China, the one thing that is absolutely certain to get the undivided attention of a carrier-group commander. That how you say “Yankee go home” in Mandarin.

Since they really don’t want their energy supplies dependent on the good will of the U.S. Navy, they are also looking for alternative energy routes, and generally strengthening ties to energy suppliers: pipelines across Venezuela and Canada to the Pacific, pipelines in Iran and Sudan, tidying up relations with the Saudis and Central Asians.

Soon we would need to decide: if Taiwan makes a move toward independence, and China uses its navy to blockade, how hard and how fast do we react?

Taiwan


Some assert that the mostly like cause of a US-Chinese war will be Taiwan, a humiliating issue for the Chinese, but both sides have been cautious for the most part. The US has recognized that Taiwan is part of China and that neither side should disturb the status quo unilaterally, China accepts our contacts with Taiwan, and the Taiwanese Kuomintang is seeking good relations with Beijing. Temperatures have risen occasionally but never for long: when China objected to our arms sales to Taiwan we dialed it back; when the former Taiwanese president visited the US, China sent ships to the straits on exercises, the U.S. Navy went to keep an eye on them, and things cooled down. China could use missiles to attack our ships and Taiwan’s missiles, but they do not have landing craft. If they were to make a military move and fail, the humiliation would be catastrophic, and other outlying regions could get uppity. They think time is on their side – they’re doing things to make Taiwan more dependent on the mainland, for example on the trade front.

The Chinese know we are very sensitive about human rights. After Tiananmen we suspend arms exports, reduced aid and investment, and blocked IMF credits. And they know we have an eye on Tibet.

Could Taiwan be brought into the fold under the Hong Kong model?