1) Chinese Economic Weaknessesa) The Chinese Economy is Dependent on Unsustainable growth.
i) While the posted growth of the Chinese economy seems amazing, it is an illusion. Their economy may have grown 11.9% in 2007
[1], but what they don’t tell you is that the Chinese economy must grow 7.0% per year in order to keep pace with new and laid-off workers
[2].
ii) Economic growth is the result of investment and “fiscal stimulus”.
[3] The central government provides for two-thirds of investment in the economy, and they are running out of money.
[4] If it continues to spend at its current rate, the government will go bankrupt in around 5 years.
[5]b) Export Driven Economy
[6]i) China’s growth is dependent on their ability to conquer export markets and undercut competitors.
ii) Exports are primarily consumer goods.
c) Industrial Economic Model
i) China has become the world’s “factory floor.”
[7] They are a heavy duty industrial economy. They are dependent on factories, cheap unskilled labor, and cheap raw materials.
(1) The Chinese get a significant portion of raw materials from Africa for which they get a huge discount for providing weapons and infrastructure to dictatorial regimes (the infrastructure obviously benefits them as well, by making exploitation and transportation of natural resources easier.)
[8]d) The “China Price”
i) In order to undercut and dominate foreign export markets, the Chinese must be able to charge less for their products, around 30% less than competitors. The “China Price” is absolutely essential to Chinese domination of export markets, by extension, the health of their economy. In order to offer this low price, it means keeping costs down. The following tactics are used
[9]:
(1) Exploited, Disciplined, and Well Trained Work Force
(a) Non-Union
(b) Low Safety and Health Regulations
(c) Reserve Army of Labor
(i) Unemployment is 25% which is a little more than 100 million unemployed workers.
[10] This keeps wages very low, because there is much more supply than there is demand.
(2) Foreign Direct Investment
[11](a) Modernizes and keeps China’s Factories High-Tech and thereby competitive
(b) Cutting Edge Managerial Strategies from Foreign Investment Firms
(3) Industrial Network Clustering
[12](a) Highly Centralized and Highly Efficient Manufacturing Block
(4) Elaborate, Government-Sanctioned System of Counterfeiting and Piracy
(a) China’s entrepreneurs use pirated and counterfeit “factors of production,” thereby significantly cutting costs.
[13](b) Chinese government tacitly accents to the black industry because it creates jobs, keeps inflation low, and generates billions of dollars in export revenues.
[14](i) It is legal to export counterfeit and knock-off goods from China.
[15](5) Massive Government Subsidies to Targeted Industries
[16](a) Direct and Indirect subsidies are given by the government to key “Pillar Industries.” These are the largest businesses in China, which includes the energy industry.
(b) The government also erects a complex web of trade barriers that protect their more vulnerable industries, like agriculture, and fledgling industries.
(c) Lastly, the banks in China provide capital and credit to their businesses, without any expectation that it be repaid.
(i) 490 billion dollars are on the Chinese banks books as “unrecoverable.” According to the U.S. - China Economic and Security Review Commission Chinese banks are for all intensive purposes “insolvent.”
[17]e) Trade Surplus with U.S.
i) The United States has a 202 billion trade deficit with China. This accounts for 25% of the U.S.’s total trade deficit.
[18]ii) The Chinese economy is dependent on the U.S. consumer, who buys a huge portion of its goods. In this way, the U.S. has massive power over their economy.
[19]iii) This trade deficit is one the main factors of Chinese economic growth.
[20]f) Deficit Government Spending
i) Chinese Banks are nationalized, which means state-owned and operated. The government therefore, in order to stave off collapse, must take responsibility for the unrecoverable loans that it forced the banks to give.
[21]ii) Increased spending on the military brings no real economic benefit.
[22]iii) Massive public works campaign, such as the Three Gorges Dam, allows the government to try and control and stimulate the economy by spending government money.
[23]g) Bank System Near Collapse
i) The unrecoverable “loans” that Chinese banks have given have made them essentially bankrupt. However, because a banking system is necessary, the government props them up at huge expense to itself and the economy.
[24]h) Corruption
i) The corruption of Chinese Communist Party officials is good for us in three ways:
(1) The officials overtax the peasants to maintain their lavish lifestyles. They confiscate land and give it to corporations, for which they get a kickback. Obviously, they alienate government from its people.
[25](2) An official that takes bribes for someone is willing to take bribes from anyone.
(3) They squirrel their ill gotten gains away, usually in Swiss bank accounts. This takes extremely large amounts of money out of the Chinese economy.
[26]i) WTO
i) The World Trade Organization could be China’s best friend or its worst enemy.
(1) On the one hand, the membership in the World Trade Organization can result in a better economy and richer, and happier, citizens.
[27](2) On the other hand, a stipulation of WTO membership is that China must slacken their protectionism and unscrupulous business practices. While they are complying, it isn’t very enthusiastically. If they continue running their economy the way that they have, then WTO membership will ruin them.
[28]2) Analysis of Weaknessesa) Political stability is dependent on economic growth.
i) Their products are real things, unlike a service economy, and made in a centralized place, like a factory.
(1) They are therefore easily targeted.
(2) The Chinese are not the only industrializing country. India and Taiwan could easily pick up any Chinese slack.
ii) There is still considerable unrest due to unemployment. Their magnificent rate of growth just keeps their collective heads above water.
iii) Increasing the “China Price” will, provided it is increased enough, cause a catastrophic collapse of the Chinese economy. That price is the sole reason consumers buy from China. Most of the world is horrified by the human rights violations and the barbarity of the Chinese regime.
b) Arrogance
i) As I have shown, the Chinese adopt economical policies that create illusionary growth and faux prosperity. However, they fool themselves into thinking that the good times will never end.
ii) Despite their dependence on the trade deficit with America, they still steal American secrets and counterfeit its products. China also pegs its money’s value below ours, using a “fixed exchange rate” which allows their exports to stay competitive. This causes extensive damage to the American economy, and destroys America’s industrial base.
[29] They seem to think that they are entitled to the money America gives.
c) Internal Unrest
i) The arrogance and tyranny of the Chinese regime has alienated and angered millions Chinese subjects. This has resulted in an astronomically high number of protests, riots and strikes (100,000 annually).
[30] This situation could be exploited with agents of influence, who could train and direct the riot into a rebellion.
3) Economic Warfare Strategya) Operational Concept
i) Increase Trade Surplus
ii) Undermine “China Price”
iii) Increase Internal Dissension
iv) Increase External Pressure on Crippled Chinese Economy
v) Result: Collapsed Economy and Civil Unrest Catalyzes Regime Change
b) Implementation
i) Increase Trade Surplus
(1) Brings About Further Chinese Prosperity
(2) Makes Rising Costs Affordable
(3) This will reaffirm their feeling of entitlement and blind them to coming economic crisis. Making the crisis a surprise will increase its effectiveness.
ii) Increase Internal Costs and Undermine the “China Price”
(1) Organize Labor and Unemployed
(a) Bring American labor organizers into the clandestine service, and use them to organize Chinese labor.
(b) Infiltrate experts in insurgency to start armed Chinese rebellions.
(2) Rotating Sabotage of INC
(a) In order to increase the “China Price”, manufacturing costs must be raised. The centralized nature of the industrial base makes sabotage easier, safer, and more effective.
(3) Flood Market with Supposed “Chinese” Fakes
(a) Chinese fakes are already a scourge, and in some of the worst cases, they have caused deaths.
[31] Poor international public opinion will hurt Chinese business, prompting the government to crackdown on counterfeiting. This will have the following results:
(i) It will decrease counterfeit export revenue.
(ii) Many small businesses will begin to have to pay for their own development costs, which would diminish their ability to compete with western businesses. This would eventually lead to their going out of business in the long term, but in the short-term would increase overhead costs which would be passed on to consumers.
(4) Bribe Chinese Officials to Enforce Law
(a) This makes sure that the policy-makers and the enforcers are on the same page, and that anti-counterfeiting is actually enforced.
(b) Enforcing environmental and safety regulations, such as they are, will increase costs for factories.
(c) Businesses thrive on the corruption of government officials. Unfriendly officials make business more difficult.
(5) Make Energy Expensive
(a) Chinese System Wasteful Of Energy
(i) China uses four times more water than the world average to produce a single unit of GDP.
[32](ii) Water prices are artificially low; they are sold at half the price of their actual price.
[33](b) Reliant on Dams for Cheap Electricity
(i) Sabotaging the damns will dramatically increase energy overhead.
(ii) Their dams are already collapsing due to poor maintenance (averaging 71 collapses annually
[34]). With a little effort Chinese water and electricity supplies could be dramatically reduced, and the costs associated with them will rise.
c) Increase External Pressure on Crippled Chinese Economy
i) Slowly Lower Trade Deficit
(1) Once the Chinese economic infrastructure has been sufficiently damaged, lowering the trade deficit with them will put overwhelming pressure on an already over-taxed system.
(2) In order to survive, Chinese industries will lay off workers. As the economy continues to worsen, more and more people will be affected. With support they will rise and overthrow the government.
ii) Encourage Trade and Contracts with India and Taiwan
(1) To keep our economy healthy, and to further damage the Chinese, we will encourage trade with India and Taiwan by granting Most Favored Nation and Free Trade Agreements with both.
(2) Both nations will be able to pick up the Chinese slack, and they are much more comfortable trading partners, with few human rights violations and democratic governments.
(3) Their trade practices are fair.
iii) Increase African Raw Material Costs
(1) Due to blatant and horrible human rights violations, it would be plausible for the U.S. to send peacekeepers into these African nations, and cut off the oil and cheap raw materials these rogue states supply to China.
(2) Using the U.N. would fail because the Chinese would veto any action against their puppets. However, with proper public relations, this could be used as a weapon against them.
iv) Topple Faltering Chinese Banks
(1) Famed economic consultant Laurence Brahm said, “The Chinese government is not stupid enough to allow the state-owned banking system to collapse.”
[35] Despite exhibiting a stunning ignorance of the workings of the market, Brahm highlights an interesting point. Instead of being to rely on healthy bank system, despite economic failure, China will have to continually prop up the banks, investing resources that could be put to better use counteracting the causes of their economic crash. The banking system is a parasite instead of a boon.
v) Stop Foreign Direct Investment
(1) Though we can’t account for other countries investors, American private investment is essential to keeping Chinese products competitive. We could block, or at least discourage, investment in China through government law and/or regulation.
(2) Even without government interference, perceptive investors will see the way the eastern wind is blowing, and take their business elsewhere.
d) Result: Collapsed Economy and Civil Unrest End Regime
i) One of four end results:
(1) Inability to control provinces, and rioting in Beijing prompts the Politburo to leave China.
(2) A more directed revolution will overthrow the government, Mao style.
(3) The Politburo will remain in power, but with significant policy changes.
(4) Nothing will essentially change, but due to the myriad of economic problems China faces, it will eventually lead to collapse anyway. The economic warfare waged against China will quicken its demise, though it may cause untold devastation in its death throes.
ii) In any of these cases, the mission is accomplished, though with varying degrees of success.
[1] http://www.iht.com/articles/2007/07/19/business/yuan.php
[2] The Coming Collapse of China; Gordon Chang; pg. xix
[3] The Coming Collapse of China; Gordon Chang; pg. xx
[4] The Coming Collapse of China; Gordon Chang; Chapter 8, pg. 181-183
[5] The Coming Collapse of China; Gordon Chang; Chapter 8, pg. 186
[6] The Coming China Wars; Peter Navarro; Chapter 1, pg. 2
[7] The Coming China Wars; Peter Navarro; Chapter 1, pg. 2
[8] The Coming China Wars; Peter Navarro; Chapter 4, pg. 77
[9] The Coming China Wars; Peter Navarro; Chapter 1, pg. 2-3
[10] The Coming China Wars; Peter Navarro; Chapter 1, pg. 6
[11] The Coming China Wars; Peter Navarro; Chapter 1, pg. 12
[12] The Coming China Wars; Peter Navarro; Chapter 1, pg. 15
[13] The Coming China Wars; Peter Navarro; Chapter 1, pg. 17
[14] The Coming China Wars; Peter Navarro; Chapter 2, pg. 26
[15] The Coming China Wars; Peter Navarro; Chapter 2, pg. 40-42
[16] The Coming China Wars; Peter Navarro; Chapter 1, pg. 18-19
[17] The Coming Collapse of China; Gordon Chang; Chapter 8, pg 181
[18] http://worldnews.about.com/od/china/a/china_trade.htm
[19] http://worldnews.about.com/od/china/a/china_trade_3.htm
[20]The Coming China Wars; Peter Navarro; Chapter 11, pg. 204-206
[21] The Coming Collapse of China; Gordon Chang; Chapter 8, pg 181-183
[22] The Coming Collapse of China; Gordon Chang; Chapter 8, pg 181
[23] The Coming Collapse of China; Gordon Chang; Chapter 8, pg 175
[24] The Coming Collapse of China; Gordon Chang; Chapter 6, pg 141-143
[25] The Coming China Wars; Peter Navarro; Chapter 9, pg. 164-171
[26] The Coming China Wars; Peter Navarro; Chapter 9, pg. 157-171
[27] The Coming Collapse of China; Gordon Chang; Chapter 9, pg 194-198
[28] The Coming Collapse of China; Gordon Chang; Chapter 9, pg 199-203
[29] The Coming China Wars; Peter Navarro; Chapter 1, pg. 18
[30] The Coming China Wars; Peter Navarro; Chapter 9, pg. 158
[31] The Coming China Wars; Peter Navarro; Chapter 2, pg. 22
[32] The Coming China Wars; Peter Navarro; Chapter 8, pg. 154
[33] The Coming China Wars; Peter Navarro; Chapter 8, pg. 153
[34] The Coming China Wars; Peter Navarro; Chapter 7, pg. 136
[35] The Coming Collapse of China; Gordon Brown, Chapter 6, pg. 142