A Note on China from Strator's Founder/CEO

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George Friedman, The State of the World: Assessing China's Strategy. Stratfor, Mar 6, 2012.
http://www.stratfor.com/weekly/s ... ing-chinas-strategy

Quote:

"After a failed rising in Shanghai in 1927, Mao Zedong exploited these tensions [between prosperous coast and poor interior] by undertaking the Long March into the interior, raising a peasant army and ultimately conquering the coastal region. He shut China off from the international trading system, leaving China more united and equal, but extremely poor. The current government has sought a more wealth-friendly means of achieving stability: buying popular loyalty with mass employment. Plans for industrial expansion are implemented with little thought to markets or margins; instead, maximum employment is the driving goal. Private savings are harnessed to finance the industrial effort, leaving little domestic capital to purchase the output. China must export accordingly.

"The key for China is maintaining interior stability. If this portion of Han China destabilizes, control of the buffers becomes impossible. Maintaining interior stability requires the transfer of resources, which in turn requires continued robust growth of the Chinese coastal economy to generate the capital to transfer inland. Should exports stop flowing out and raw materials in, incomes in the interior would quickly fall to politically explosive levels.

"The very model of employment and market share over profitability misallocates scores of resources and breaks the normally self-regulating link between supply and demand. One of the more disruptive results is inflation, which alternatively raises the costs of subsidizing the interior while eroding China's competitiveness with other low-cost global exporters.

"For the Chinese, this represents a strategic challenge, a challenge that can only be countered by increasing the profitability on Chinese economic activity. This is nearly impossible for low value-added producers. The solution is to begin manufacturing higher value-added products (fewer shoes, more cars), but this necessitates a different sort of work force, one with years more education and training than the average Chinese coastal inhabitant, much less someone from the interior. It also requires direct competition with the well-established economies of Japan, Germany and the United States. This is the strategic battleground that China must attack if it is to maintain its stability.

"Besides the issues with its economic model, China also faces a primarily military problem. China depends on the high seas to survive. The configuration of the South China Sea and the East China Sea render China relatively easy to blockade. The East China Sea is enclosed on a line from Korea to Japan to Taiwan, with a string of islands between Japan and Taiwan. The South China Sea is even more enclosed on a line from Taiwan to the Philippines, and from Indonesia to Singapore. Beijing's single greatest strategic concern is that the United States would impose a blockade on China, not by positioning its 7th Fleet inside the two island barriers but outside them. From there, the United States could compel China to send its naval forces far away from the mainland to force an opening -- and encounter U.S. warships -- and still be able to close off China's exits.

"It is important to bear in mind that since the Communists took power, China has undertaken offensive military operations infrequently -- and to undesirable results. Its invasion of Tibet was successful, but it was met with minimal effective resistance. Its intervention in Korea did achieve a stalemate but at horrendous cost to the Chinese, who endured the losses but became very cautious in the future. In 1979 China attacked Vietnam, but suffered a significant defeat. China has managed to project an image of itself as a competent military force, but in reality it has had little experience in force projection, and that experience has not been pleasant.

"The reason for this inexperience stems from internal security. The People's Liberation Army (PLA) is primarily configured as a domestic security force -- a necessity because of China's history of internal tensions.

"There is a disjuncture between the perception of China as a regional power and the reality. China can control its interior, but its ability to control its neighbors through military force is limited. Indeed, the fear of a Chinese invasion of Taiwan is unfounded. It cannot mount an amphibious assault at that distance, let alone sustain extended combat logistically.

Note: Stratfor
http://en.wikipedia.org/wiki/Stratfor
(Strategic Forecasting, Inc., more commonly known as Stratfor, is a global intelligence company founded in 1996 in Austin, Texas by George Friedman; In early 2012, WikiLeaks began publishing what is says are over 5 million of the company's emails)