Category: China

China’s Impending Military Might: A Cause for Concern?

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It’s been a terrifying couple of months for Americans.  Always suspicious of China’s intentions, things have reached a fever pitch in the last few weeks after grainy pictures surfaced from Chinese bloggers that the Chinese air force was building a stealth fighter.  Shortly after the rumors came out, we had videos of the mysterious plane taking off.  What some experts had thought would be years away from production was here.  Now.  Ruining Christmas, and just in time for New Years.This came right on the heels of an announcement from China that they were building an aircraft carrier that is part of Beijing’s plan to “build itself up as a maritime power.”  Yikes!

I enjoy hyperbole, and I’m obviously writing in a bit of a sarcastic tone, but it’s been unbelievable to witness the collective meltdown that the American news media is having over China.  Hu Jintao’s recent visit is gasoline on the fire, and we have pundits accusing China of stealing our technology, all-but declaring war against other countries, and kicking off an arms race with the United States.

The People’s Liberation Army Navy (PLAN)

However, these feelings simply don’t correspond with the facts.  Lets talk about the carrier for a minute.  For a little context, you can see a list of all known semi-active aircraft carriers in the world, broken down by country here.  The list is as follows:

  • Brazil (1)
  • France (1)
  • India (1)
  • Italy (2)
  • Russia (1)
  • Spain (2)
  • Thailand (1)
  • United Kingdom (1)
  • United States (11)

It’s important to note that all eleven of the US carriers are in fact supercarriers, which at 70,000 tons, and considerably larger than the 40,000 ton carriers that some countries have, with the vast majority of the carriers operated by other nations falling into the 20,000 ton light carrier class.  In other words, all US carriers are almost four times larger than competing offerings.Carriers are important to the American objectives of being able to project power.

Current US war doctrine assumes air superiority as a prerequisite for military success, and when you’re separated from everyone else by two oceans, you’ve got to be able to move planes around in order to move troops around to win wars. Carriers are astronomically expensive to operate, build, and deploy.  It should be noted that of the list of carrier wielding countries, a couple have trouble keeping them deployed (most notably Thailand).  Due to the challenging nature of conducting carrier operations, consistent deployment patterns are a must.  It takes years for navies and countries to get to the point where they’ve got enough in-house experience to operate a carrier effectively, and it takes even longer to be able to do it in combat, under pressure.

China’s plans for a carrier are interwoven with its plans to develop a blue water navy (one capability of operating beyond territorial waters).  Only Russia, France, the UK and US are considered to have blue water navies.  Ironically, China is very familiar with the efficacy of carriers as Qingdao, one of its main naval bases, (under German control at the time) was involved in the first naval-launched air raid during World War One when Japanese planes flew in and bombarded the German command post.

In the current context, it is almost laughable (a feeling shared by the Navy’s top officer) that the US should feel even remotely threatened by China’s current and future naval plans (there are plans for China to develop a nuclear carrier by 2020, compared to the conventional ship currently under construction).  If we’re afraid of China why not be scared or India, Italy, or Thailand?

It’s no mystery that China’s sabre rattling whenever Taiwan pisses them off is just that: sabre rattling.  The US typically moves a carrier group into the Taiwan straight and that’s that.  China has no ability to invade Taiwan, mainly due to its lack of a credible Navy.  The PLA’s main attempt to advance against Taiwan forces as a spearhead towards island invasion operations in 1949 was crushed in part by a lack of troop landing vessels and this lesson has certainly stuck with PLA leadership.

The Stealth Fighter – Credible Threat?

The stealth fighter or bomber or whatever it actually will end up being is also in the category of “who cares”.  Its engine, like most of China’s engines, is produced by Russia, which means a vulnerable and non-domestic supply chain during wartime.  It’s large and can’t super-cruise, which means it’s short range.  This narrows its effective targets to Taiwan and maybe India, which are essentially China’s main military and geopolitical priorities.  A more realistic perspective would be to put both the carrier and stealth fighter into the “interesting research project” category.

Chinese Defense Spending

Finally, lets look at the defense spending of both countries.  The United States spends over 600 billion dollars per year on its military (this doesn’t include wartime expenses for our adventures in Iraq and Afghanistan).  China spends 98 billion per year.  The United States spends more than twice as much as a percentage of its GDP than China does.  Amazingly, America spends forty percent of the entire world’s defense expenditures.  We’re spending more than the next seventeen highest spending countries combined.  It’s an astronomical amount of money compared to China.

Relative economic costs don’t factor in as much when you consider that premier weapons are almost uniformly constructed from parts or materials found outside of China.Lets close this entry with a hypothetical.  As my buddy Erik put it, if China were operating carriers off our coast, and flying a spy plane loaded with surveillance gear seventy miles off of Hawaii, Alaska, or even California, we would freak out. As in, absolutely lose it.  Probably declare war or nuke something, just to show how serious we are.  And yet, this is exactly what the United State did to China off the coast of Hainan island in 2001.  The United States routinely sails carrier groups and other naval units into the Straight of Taiwan, which is only one hundred and twenty miles wide.  If China routinely sailed battle groups into the Gulf of Mexico to underscore ongoing political objectives, we would freak out.

Is America’s obsession with China and its military little more than a national reluctance to accept the idea that for the rest of history, we may not retain number one status in all areas?  Are we really completely bought into the idea of global manifest destiny maintained by an indomitable military force?  Considering that we spend ten times as much as China and seem to relish the idea that we can do what we want, where we want, when we want, I’d say that maybe we’re just going to have to wake up and accept the fact that there’s room for the most populous country in the world to have a carrier.  Does this mean we fall asleep and not spend on our national defense?  Of course not.  But it does mean we can learn a thing or two and face facts. China spent many centuries as the world’s most advanced civilization.  The United States has spent fifty years there, and could easily spend fifty more, at least from a military perspective.  Already reports have surfaced that simply retrofitting F-15 Eagles with upgraded electronics gear will help our military easily defeat China’s first stealth offering.

The Bottom Line

Just as the Soviets faced off with the United States when designing units, tactics, and weapons systems, expect the same pattern to emerge between China and the United States.  Is this cause for alarm?  No, but it is cause for vigilance and realistic assessment of the situation.  Panic, hyperbole, and a crazed commentary on these issues helps nobody.

Update Feb 4, 2011

As originally mentioned above, our behavior towards China is nothing new and in fact continues a history of imposing double standards when military conduct is concerned.  The Cuban Missile Crisis is a great example of this: the U.S. puts 100 Thor ICBMs in Turkey that are capable of striking Moscow in 1958, then almost goes to war over the Soviets placing a similar arsenal close to American territory.  Right or wrong, good strategy or bad, we consistently insist on the implementation of a double standard in military matters.

China vs. the United States: What about all this debt?

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It’s almost impossible to mention China in a conversation now without hearing about them owning a large portion of our debt.  Based on my own unscientific and anecdotal perception (I asked a bunch of people), most would answer that China owns “most” or “close to half” of our debt, and I’m commonly asked “when I think that Mao Zedong will be on the hundred dollar bill.”Before we begin, I’d like to make clear that I am a fiscal conservative.  I believe the US should not routinely run a deficit, particularly a large one.  I live in a state (Florida) with a balanced budget provision in our constitution and even though it’s ignored from time to time, I think it would be a good thing to have nationally, and I believe it to be extremely unwise to routinely run deficit spending.

One of the best resources for understanding the national debt is, unsurprisingly, the US Treasury.  You can read up to date reports on outstanding debt and its holders here.  Wikipedia has a slightly outdated but directionally graphical correct representation of this data here.  From this, we can see that somewhere around 30% of all US Treasuries are held by foreign and international interests.  The rest are held by insurance companies, other investors, pension funds, mutual funds, and the government itself (mostly the Social Security trust fund).Already, this is probably not the picture you expected.  Less than a third of all US debt held by foreigners.  The treasury helpfully breaks this down further here, listing each country by holdings and the dates of the holdings.  Of that debt, China is indeed the leading holder at roughly 20.8% (as of July 2010), but Japan is right behind at 20.2%, then the United Kingdom at 9.2%, then oil exporters (5.5%), Brazil (4.0%), Hong Kong (3.3%), Russia (3.2%), and Republic of China or Taiwan at 3.2%.

After just a few minutes of basic research, we’ve learned that China has roughly 6% of our national debt under its ownership, and of the rest of the countries on that list, Japan, the UK, Taiwan, and Brazil would be counted in the friendly-to-America column, or at least in the “choose America over China” column.  It can be argued that Hong Kong is essentially China, but it still doesn’t change the general picture at all.China, along with other countries, just doesn’t own that much of America’s national debt.  In fact, I’d say in light of all the political rhetoric, 6% is a shockingly small amount.

Still, lets say that the nightmare scenario happens, things went sour with China, and they wanted to begin flexing their muscle, using our debt against us as a weapon.  What would their options be?

  • They could sell their holdings.  This would immediately depress the value of treasuries and probably cause some amount of alarm.  However, were China to begin selling their nearly 800 billion in treasury bills, the market for these bills would rapidly cause their existing holdings to plunge in value.  In other words, by selling, they’d screw themselves fairly quickly, and they’d be forced to take that money and place it somewhere else.  Where?  The EU has proven recently to be a less than stellar investment.  Their own domestic market wouldn’t be able to absorb a nearly trillion dollar capital injection without being inflationary.  Not to mention that the Fed could simply step in like they did with TARP and buy up the 800 billion dollars that China would sell, at rock bottom prices.  Our allies could also mobilize considerable buying pressure so that their own holdings wouldn’t devalue.  At the end of it all, China would probably lose the most from this maneuver.
  • They could unpeg their currency to the US Dollar. China today artificially keeps their currency pegged at an unfavorable exchange rate (to them) in order for their products to remain cheaper for Americans.  Unbelievably, most of the current US diplomatic effort on economic issues is centered around trying to get China to remove this peg, thus making things more expensive for Americans.  Derogatory terms like “dumping” are used to describe China’s gift of subsidized products to millions of Americans.  By demanding that China unpeg its currency, we’re basically saying “remove your artificial subsidy on goods that middle and lower class Americans predominantly buy, and that will help us.”  Smarter people than I have written on this elsewhere numerous times.
  • Are there other options here? I’m trying to think of them, but the reality is this – Chinese businesses are flush with dollars.  There’s a reason almost all of the countries that are major holders of US debt are manufacturing or commodities export driven (China, Taiwan, Brazil, Oil Nations, and Japan).  They receive dollars for their products, and need to buy materials to make their products.  These materials can and do often come from other economies, so it’s advantageous to use the world’s reserve currency to procure these materials.  Notice how India is absent from the list – they’re a knowledge exporter (mostly services and knowledge work like software), and therefore most of their income is paid in wages to individuals who then spend the cash within their own economy, not paid to other economies to procure raw materials.

If you were to obtain a large sum of money (in the billions or trillions of dollars), you’re going to need to make decisions regarding the investment of that money using long term, macro-level criterion.  Government stability comes into play, geopolitics becomes important, and all of a sudden in addition to a rate of return, you’re faced with the difficult decision of who do you trust with your money – but on a national scale.  If you’re China and you’re looking around the world to invest your US dollars, you can choose Europe, a handful of economies in SouthEast Asia that are just as invested in the US as you and are competitors to yourself, Africa, or South America.  The world just got a whole lot smaller.  In that context, the US is by far the most stable recipient for your investment, and its markets are also the driver for your current economic success.Deng Xiaoping, the former leader of China and the architect of China’s reforms that shifted the country to free-market capitalism, is famous for his quote that China should stick to its economic policies for one hundred years.  China is thirty years in and has already taken enormously expensive steps (subsidizing exports by pegging to the US dollars for example) to ensure stability and continued growth.  Reasons for this are also steeped in history, as we’ll in see future posts.

Sure, China is investing more in Europe, as the recent debt offerings from Spain and Portugal illustrate, but the broader context here is that a global economic downturn hurts China just as much or more than any other economy.  Their domestic markets aren’t big enough or sophisticated enough to sop up the spare manufacturing capacity that would be created by a global downturn.  China’s economic interests are driven by political and historical goals that go unseen by Western economic analysts.

The analogy to this situation is simple:  as a construction company, you build a house, then rent it to a tenant who can also beat you up.  You sell furnishings to him too.  You’ve invested a lot in the home that you build, and all of a sudden, your tenant starts having trouble paying you back.  Unfortunately, the house is so big and lavish that there’s nobody else who can afford it, or if they were to buy it, you’d have to sell at a steep or near-total loss.  What do you do?  You follow the wisdom that banks who own their own mortgages follow: you do what you can to work out a payment plan and look to keep the tenant in the house, while not humiliating him in the process.  This way, both of you make it through hard times, and you can sell him a nicer house when he’s back on his feet in a few years and is looking to upgrade.

China is not about to jeopardize its future by focusing on short term issues and America needs to stop wringing its hands over non-issues.  The problem isn’t China’s holdings (or any other foreign entity’s holdings) of our national debt, the problem is the national debt: it’s us.  It feels a lot better to fear monger, but at the end of the day, we’re the problem.