[stratfor: The Geopolitics of China]

apr 25th

forwarded by ram narayanan.

i have been saying this stuff about the 60% non performing assets and
other ominous signs for the chinese economy for a long time. i am
surprised china hasn't collapsed yet. i think it's because the yanks
need the chinese to keep subsidizing their profligate spending. talk of
a co-dependency!

-------- Original Message --------
Subject: The Geopolitics of China
Date: Wed, 26 Apr 2006 04:38:43 -0400
From: Ram Narayanan <ramn_wins@adelphia.net>
To: <Undisclosed-Recipient:;>

*STRATFOR, GEOPOLITICAL INTELLIGENCE REPORT*
**
*04.25.2006*

The Geopolitics of China

*By George Friedman*

Chinese President Hu Jintao visited Washington last week for a meeting
that diplomatically might be called "nonproductive" -- or,
realistically, "disastrous." Not only was nothing settled, but a series
of incidents -- ranging from a reporter shouting insults at Hu and being
permitted to continue doing so for three minutes, to an announcement
that the national anthem of "The Republic of China" (also known as
Taiwan) was being played -- marred the visit, to say the least.

It is hard for us to believe that the admission of a Falun Gong member
to the White House press pool would go unnoticed by the White House
staff, or that it would take three full minutes to silence her. We are,
sad to say, cynical people, and it is plausible that the insults were
deliberate. The American side had been leaking for weeks that Hu would
try to use the visit for his own political ends in China, and wanted to
be granted every honor conceivable during the trip. The White House
appeared irritated by this hubris, although it would, on the surface,
appear quite natural for the United States and China to exchange full
diplomatic courtesies.

Obviously, something serious is going on in Sino-U.S. relations. The
United States has openly discussed a hedge strategy on China, under
which economic relations would proceed while the United States increased
its military presence in the region as a hedge against future trouble.
China, for its part, has been more than a little troublesome in areas
where the United States does not want it to be, particularly during the
current confrontation with Iran.

China and the United States are bound together economically. That is one
of the major problems, since they need very different things. The
Chinese economy
<http://www.stratfor.com/products/premium/read_article.php?id=263140>,
as we have argued in the past, is not doing nearly as well as its growth
rate
<http://www.stratfor.com/products/premium/read_article.php?id=260609>
would indicate. We won't rehash our views on that. However, the economic
reality creates an obvious tension
<http://www.stratfor.com/products/premium/read_article.php?id=259659>.
Chinese exports are surging at very low or nonexistent profit margins in
order to sustain a financial system that has accrued a nonperforming
loan burden that is, by some measures, as high as 60 percent of gross
domestic product. The United States is addicted to Chinese imports, and
China is addicted to exporting to the United States. The United States
wants China to revalue the yuan in order to raise the price of Chinese
exports. The Chinese, eager to maintain and increase exports, have no
intention of allowing a meaningful rise in the yuan.

There are other forces binding the two countries together as well. The
most important is Chinese money -- which is flowing out to other
countries precisely because China is no longer a particularly attractive
place for Chinese investment. There is serious capital flight under way,
as money is redeployed to safer havens. The safest haven from the
Chinese point of view is the United States -- thus, Chinese investment
there is surging. And the United States needs this money. In this sense,
both countries are in a death-lock. There is no other economy that is as
large, liquid and safe as the American economy. Chinese investors need
their funds to be in the United States. And there is no larger pool of
cash than China's to finance U.S. debt.

This means that there is no divorce looming in Sino-U.S. relations. But
at the same time, it must be noted that, despite very close connections
between China and Japan, Sino-Japanese relations have deteriorated
remarkably -- and it is China that has driven the estrangement. The
reasons are political: China's government has domestic problems, and
patriotic fervor will tend to buttress Beijing's power. Japan is still
deeply hated for its behavior in World War II, and attacking Japanese
behavior is good politics. The Chinese have strained relations with
Japan nearly to the breaking point.

What is important here is this: It must not be assumed that China is
driven purely by economic considerations. In the case of Japan, Beijing
clearly has subordinated the economic advantage of having smooth
relations with Tokyo to its own domestic considerations. Now, Japan is
not the United States -- it is a significant country for China, but not
economically decisive in the way that the United States is. The Chinese
have more room for maneuver there. At the same time, it must be
understood that China is playing a complex game, and while making money
is up there on the priority list, it is not the only thing up there.
Preserving national unity in the face of centrifugal forces and foreign
power also matters a great deal to the Chinese.

It is therefore time to stop to consider China's national strategy in
the long run, and therefore, to consider China's geopolitics.

*The Geography Factor*

Beginning, as is necessary, with the outlines of China's national
boundaries, we are immediately struck by the fact that China is, in many
ways, an island. To the east are the South and East China Seas. To the
northeast is Siberia, thinly inhabited and to a great extent
uninhabitable. Some limited military expansion in that direction is
possible, but a large population could not be sustained. To the direct
north is Mongolia -- occasionally part of China, occasionally the ruler
of China, but currently a fairly unimportant area, not worth projecting
force into. To the southwest are the Himalayas. There is frequent talk
of India as balancing China, but this is, in fact, meaningless
<http://www.stratfor.com/products/premium/read_article.php?id=252087>.
They are as much separated as if there were a wall. There can be
skirmishes along the dividing line in the Himalayas, but no massive
movement of armies.

In the southeast, there is Indochina. China could expand there, but the
last time there were land-based skirmishes, in 1979, Vietnam beat the
Chinese soundly (though both sides claimed victory). Jungles and
mountains stretching from eastern India to the South China Sea make that
region impassable, even without the need for self-defense. Finally,
there are the western approaches into Central Asia, through Kazakhstan.
This has been the traditional, and in some ways only, route for Chinese
aggression. China is certainly deeply involved in Central Asia, but its
own region of Xinjiang is both Muslim and hostile to Beijing. It does
not provide a base for launching invasions, even if one was wanted.

For these reasons, China must be viewed as one of the most insular great
powers in the world. It has occupied most of the terrain that is
accessible to it; what remains is either inaccessible, undesirable or
quite able to defend itself. China's great interest, therefore, should
be the oceans. Over the past 20 years, China has become a major exporter
and thus should have a great interest in securing its sea lanes. But
China's coastal waters are effectively controlled by the U.S. 7th Fleet.
Constructing a navy that could challenge the U.S. Navy would take a
fortune, which China probably has, but also one or two generations would
be needed -- not only for construction, but for establishing a military
culture suitable for an aggressive naval force.

Most important, challenging the U.S. Navy with a Chinese navy cannot be
done regionally. The United States has fleets other than the 7th Fleet,
and if the U.S. Navy were concentrated against China, the Chinese could
not fight a defensive battle. They would have to take the fight to the
Americans, and that would mean fielding a global naval force. China
might one day have that, but they do not have it now. In this sense, the
standard concerns about a Chinese invasion of Taiwan are not realistic.
China does not have a naval force capable of taking control of the
Taiwan Strait, nor the amphibious force needed to gain significant
lodgment in Taiwan, nor therefore -- and this is the key -- the ability
to sustain a multidivisional force in Taiwan.

*The Internal Divide*

China does not have many regional options with conventional forces nor,
for that matter, does it face a conventional threat from within the
region. China's primary geopolitical problem, and thus its chief
military mission, is domestic. China is a highly diverse and fragmented
country; maintaining control of the current extent of the country is the
major strategic problem. Unlike most nations, whose external
geopolitical problems define their military thinking, China's internal
geopolitical problems drive its military planning.

There are two dimensions to these problems. The first is ethnic: China
occupies areas like Xinjiang, Tibet and Manchuria that are ethnically
distinct and sometimes restive. The other and deeper problem, however,
is not ethnic but regional. China has a large coastal plain. It also has
a vast interior that is mountainous. The tension between those two
regions historically has been a great challenge that China has faced.

The interior is heavily driven by agriculture -- subsistence
agriculture. It is extraordinarily poor, and arable land is minimal. The
coastal regions are relatively better off, to the extent to which they
conduct international trade through coastal ports. Thus, China has had
two realities. In one, the coastal regions were cut off from the rest of
the world, and there was a rough equality between the regions. Until the
British showed up in the 19th century, for example, trading with
foreigners had been illegal. After the British forced China open, the
coastal regions boomed, and the country fragmented; the coastal regions,
manipulated by foreigners who were in turn manipulated, turned outward
to the ocean, while the interior stagnated. Mao tried to create a
revolution in Shanghai and failed. Instead, he went on his Long March to
Yenan in the interior, raised a peasant army from there, and came back
to conquer the coast. He also closed off China from the world, creating
poverty but relative unity.

Deng gambled with the idea that he would be able to have his cake and
eat it too. He opened China to the world, thereby enriching the coastal
regions and recreating the tension that Mao had sought to abolish. For
30 years, Deng's gamble worked. Now it is breaking down. Beijing is
urgently trying to shift resources from the wealthy coastal regions to
the restive interior. The coastal provinces naturally are resisting. The
great question is whether Beijing will be able to juggle the two
realities, whether China will again turn inward to maintain geopolitical
integrity or if it will fragment further into warring regions.

Balancing the two indefinitely is the least likely outcome. But China
does have one other card to play, which is patriotism. The Communist
Party has little legitimacy at this point, but the idea of China --
particularly among ethnic Chinese of whatever region -- is not a trivial
driver. In order to generate patriotic fervor, however, there must be a
threat and an enemy. At this point, the Chinese are using the Japanese
in order to sustain patriotism. Reclaiming Taiwan would stir the spirits
and reduce regional tensions, but this, as we have pointed out, would be
militarily difficult in any conventional way. Moreover, it would bring a
confrontation with the United States.

*Priorities and Options*

If we accept the idea that maintaining the territorial integrity of
China is its greatest geopolitical imperative and that regional
prosperity comes second for Beijing, it follows that the government will
attempt to impose its will on the coast, and trade and economic concerns
will come second. Beijing's interest in having smooth trade relations
wanes, both because the wealth gap exacerbates tensions between the
regions and because the interest runs counter to its need for external
confrontation. It follows from this that China's primary interest -- and
ability -- would be to maintain security in China, and that foreign
adventures would be avoided except under circumstances in which they
would have a high probability of success and would serve internal
political interests.

A secondary goal would be to protect China's coast from foreign
encroachment. Imagine the following scenario: Business and Party
interests in the coastal region are resisting Beijing's efforts to bring
them under control and impose taxes. The situation becomes unstable, and
Western interests, investments and the expatriate community living there
are jeopardized. Through some political contrivance, these local leaders
position themselves as the regional authority and ask for American
intervention. The United States decides to intervene. Given that this is
roughly what happened in the late 19th and early 20th centuries in China
-- during which time there was a major American presence in Shanghai --
it is not as far-fetched as it might seem.

Under these circumstances, the government in Beijing would be forced to
resist or abdicate. So, if the primary interest of China is the
maintenance of internal security, a secondary interest would be
deterring foreign interventions in the event of instability. The
tertiary interest would be some form of force projection in the region,
particularly against Taiwan -- which not only could be regarded as an
internal security matter but would provide the regime with patriotic
credibility.

If we accept the premises that China's major resources will go to the
army for security purposes, and that China is at least a generation away
from having a significant naval force, then what military options do the
Chinese have? Obviously, one is its nuclear force. That is a serious
deterrent; nations have attacked nuclear powers (Egypt and Syria against
Israel in 1973) but not for the fairly marginal reasons the United
States might have to get involved in China at some hypothetical future
date. But given that deterrence runs both ways, nuclear stalemate always
leaves opportunities for subnuclear threats.

The prime military lever within China's reach is not sea-lane control,
but rather sea-lane denial. Using anti-ship missiles, the Chinese could
impose heavy attrition on the sea-lanes leading to Taiwan and even
potentially interdict Japan's sea-lanes. This would not guarantee China
control of the sea-lanes, and that is a problem if China is importing
oil by sea. However, in extremis, it would hurt Taiwan and Japan more
than China. And if the Chinese had systems that could threaten to
overload U.S. Aegis and follow-on systems designed to protect warships,
then it could force the 7th Fleet to retreat as well. The tactic would
serve as a deterrent against intervention and as a suitable secondary
system to supplement the army. It would also serve as a threat to the
interests, if not the survival, of Taiwan.

All of this is of course hypothetical and speculative. It assumes that
the current trends in Chinese relations with Japan and the United States
are merely road bumps rather than fundamental shifts in China's pattern.
But given that China does shift its pattern every 30 years or so, and
that the stresses on China make it reasonable to expect some shift --
and finally, given that there is a trend toward increased tensions in
play -- it is not unreasonable to think of China in a different way than
has been customary. China has been seen by Americans as a giant money
factory. It is that, but it is both less than that and more. It is a
great power facing other great powers, and a superpower. And while the
scenarios here are extreme, thinking about the extremes can be useful.

/Send questions or comments on this article to //analysis@stratfor.com/
<mailto:analysis@stratfor.com>.