Tuesday, May 30, 2006

Chinese Book Blames US for 1960s Setbacks

Not for nothing, as the Soviets would have put it, has China published a book blaming the United States for its economic woes in the 1960s. The book, released Tuesday by the Chinese Academy of Social Sciences, is first in a series of strategically selected, state-sponsored works--from essays to television documentaries--which will reach into the past to draw lessons for the present in light of foreign pressures for political and economic reform.

The underlying message of this intellectual and creative outpouring: let China be, because outside pressures have historically made matters worse.

But "The Research Report on China's 10 Five-Year Plans" does more than blame America, arguing as it does that the urgent threat of a planned US military attack drove Mao Zedong to abandon plans to boost and restructure China's economy and instead allocate precious resources to preparing for "all-out war with the imperialists." The book also makes an important contribution toward supporting the official view of Mao's rule.

Unlike the denunciations of Stalin and (Stalanism) by Soviet leaders, the Chinese government has never officially repudiated Mao's methods. Instead, the state has stuck to its 70/30 theory--which holds that 70 percent of the Great Helmsman's achievements were good and 30 percent were bad.

Given the horrors of the 1958 Great Leap Forward and the '60s Cultural Revolution--two of history's greatest man-made disasters, which resulted in the deaths of an estimated 30 million Chinese--or a million victims for every one percent of officially acknowledged bad works--government-approved academicians and writers have had to work long and hard over the years to rationalize the famous ratio.

The book about the five-year plans could help to ease their burden. Recalling US and European revisionist histories of the Cold War that blamed Washington for feeding Stalin's paranoia, "The Research Report" may lead people at home and abroad to wonder: If not for the US, could things have turned out in a radically different way--for Mao and all of China?

This in part explains the timing of the book's publication, around three months ahead of the 30th anniverary of Mao's death on September 9, 1976. While Westerners typically see a sharp break between the stagnation and chaos of the Mao era and today's booming economy, the continuity-conscious Communist Party line is that Mao paved the way for progress by transforming a backward, pre-capitalist agrarian society into a modern industrial state, albeit at a great cost.

The book cites alleged declassified US documents and discussions among US policymakers to make the case that Washington was plotting air strikes against China in December 1964, just two months after the country's first successful testing of an atomic bomb at a desert location in Xinjiang.

Upon learning of the plan, the book says, Mao changed the focus of China's 1966-'70 five-year plan, relocating important factories, government offices, and research institutions to secret sites in the mountains of China's Southwest. As a result, nothing was done to address shortages of food, clothing and daily necessities; economic development was delayed; and living conditions for the overwhelming majority of Chinese remained unchanged.

The new revelation and analysis conflicts with Western scholarship, which has attributed China's 1960s defensive buildup to fears of a Russian attack after the so-called Sino-Soviet split divided world Communism. (The split had its roots in Stalin's betrayal of the 1927 Communist uprising that was crushed by the nationalist Koumintang, with whom the Communists had been allied).

Reporting on the book, the official Xinhua News Agency said that while Mao's decision to refocus on the battle against imperialism dealt a blow to the economy, the relocation of factories had an unintended positive effect in that it laid a solid foundation for contemporary efforts to revive the economy in China's far western region.

In other Mao-related news ... the portrait that served as the model for the Mao painting that hung above Tianammen Square was reportedly removed from the auction block this week after a public outcry by thousands of Internet users. The painting by artist Zhang Zhenshi was scheduled to be auctioned on June 3rd and expected to bring its Chinese-American owner as much as 1.2 million yuan (around $150,000). The auction was cancelled "according to the views of relevant government authorities," Beijing Huachen Auctions said.

For many Chinese, apparently, the 70/30 theory is quite credible.

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China Calls on Iran and Hamas to Moderate Positions

Beijing on Tuesday called on Tehran to resume full cooperation with the International Atomic Energy Agency, and on the Palestinian government led by Hamas to renounce violence and recognize Israel's right to exist.

Chinese Foreign Ministry Spokesman Liu Jianchao, whose photo appears on the left, made the calls.

His appeal to Iran came two days before the five permanent members of the United Nations Security Council and Germany meet in Vienna to try to resolve the dispute over Iran's nuclear programs.

"As a signatory to the nuclear non-proliferation treaty, Iran enjoys the rights of peaceful use of nuclear energy," Liu told reporters. "But, it should also implement its corresponding obligations and commitments. It is imperative to resume full cooperation with the IAEA (International Atomic Energy Agency) to restore the international community's confidence in Iran."

Liu also said China hopes a plan offered by France, Britain, and Germany to resolve the nuclear standoff will consider Iran's requirements for peaceful nuclear energy as well as the international community's concerns about nuclear proliferation.

The plan offers a package of incentives if Iran gives up uranium enrichment activities--and punitive measures if it refuses.

Last month Iran said it had for the first time successfully enriched uranium, a process that can produce material for nuclear weapons.

The oil-rich Islamist nation--which has questioned the reality of the Holocaust and vowed to wipe Israel off the map--claims its nuclear research is "civilian," meaning, for peaceful energy purposes. The United States, Israel and other countries say Iran is trying to produce nuclear weapons.

The UN Security Council told Tehran to suspend uranium enrichment efforts by the end of April, a deadline Iran ignored. It has also refused to allow IAEA inspectors access to all requested nuclear sites.

The US has pushed for sanctions if Iran refuses to cooperate; in contrast, Russia and China say the conflict should be resolved through negotiation.

Meanwhile, the market made its concerns known. Crude oil traded above $72 a barrel--close to a two-week high in New York--as Iran again said it is pressing ahead with nuclear research.

And, in a related development, China's official Xinhua News Agency reported that the secretary-general of the Arab League on Tuesday called for a Middle East free of nuclear-weapons.

"Our goal is to establish a zone free from nuclear weapons in the Middle East," Xinhua quoted Amir Moussa as saying in an interview in Beijing. "It is not a nuclear issue of Iran but a nuclear issue of the Middle East."

His remarks seemed to be targeted at Israel, which is widely believed to have nuclear weapons but has refused to confirm or deny it.

Liu's appeal to Hamas came on the eve of a visit to China by Palestinian Authority foreign minister Mahmoud Zahar.

"We urge Hamas to earnestly abandon violence,recognize Israel and accept the agreements already reached," Liu said, listing the three conditions that Israel and the West have imposed for negotiating with Hamas.

He added: "China does not favoror political isolation and economic blockade. But at the same time we urge Hamas to renounce violence, recognize Israel and accept agreements already reached."

Israel has sharply criticized China--an important trading partner--for hosting a Hamas government minister. In a rare setback to otherwise strong relations, China's ambassador to Israel, Chen Yonglong, was summoned to the Israeli Foreign Ministry to be told that the invitation to Zahar conferred legitimacy on the "Hamas terrorist government."

Raphael Schutz, the ministry's deputy director-general, also told Chen that Israel could not accept that diplomats accredited to it and residing in its territory maintained contact with "terrorist elements," a clear reference to Chen's meetings with Hamas officials in Gaza. Chen was also handed a diplomatic note summarizing Israel’s verbal protest.

Three days later, on May 23rd, Chinese foreign ministry spokesman Liu said his government hopes China-Israel relations will not be affected by Zahar's attendance at the two-day China-Arab ministerial meeting, scheduled to begin today. His stop in Beijing is part of a tour of Asia that also includes Indonesia, Iran, Malaysia and Sri Lanka.

The US and the European Union cut off direct aid and contacts with the Palestinian authority after Hamas won control of the government in the Palestinian elections in January.

The US, as well as the European Union, Australia, Canada, and Israel list Hamas as a terrorist organization for carrying out suicide bombings and other attacks on civilian targets.

Beijing has criticized the boycott against Hamas; and Chinese officials say they plan to reaffirm that stance to Zahar when he meets with Chinese foreign minister Li Zhaoxing.

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Monday, May 29, 2006

Congo Case Shows Contrasting US, Chinese Policies

As shown by its recent reception for Congolese President Denis Sassou-Nguesso, the country formally known as Red China, more commonly referred to nowadays as Rising China, knows how to roll out a red carpet for a visiting foreign dignitary.

Sassou, who is currently in the United States for meetings at the United Nations and a much sought-after photo opportunity with President George Bush, has visited China five times. His most recent state visit, in September 2005, was a model of Chinese diplomatic showmanship and finesse. Chinese President Hu Jintao greeted and praised the Congolese leader, a former Marxist dictator who has ruled his country for 21 out of the past 26 years. Repaying the compliment, Sassou extolled China's economic progress, technological achievements, and development paradigm during the five days he spent in the country, accompanied by his wife and an oversized delegation of top officials and advisors.

Other African heads of state have been similarly feted by Beijing. China imports 30 per cent of its oil from Africa, mainly from Sudan, Angola, and Sassou's Republic of Congo (commonly called Congo-Brazzaville to differentiate it from its larger, somewhat better known neighbor, the Democratic Republic of Congo). China is also deepening its involvement in Nigeria, as China Confidential has reported, investing billions of dollars in oil exploration and infrastructure projects.

The US and France are increasingly concerned about China's inroads in Africa; but officials in Washington and Paris candidly concede their countries are at a loss for ways to effectively blunt China's competitive edge: an unabashed, utter disregard for democracy, human rights, corruption and transparency. In marked contrast with China, the US and, to a lesser extent, France have tied these issues to investment and trade with the world's most populous--and fastest growing--nation.

In Nigeria, Sudan, and other African countries, China has shown a willingness to supply arms, donate government buildings, subsidize road building and construction projects--in short, do whatever it takes to secure access to oil and other raw materials.

"Business is business," Beijing says over and again when pressed to justify its anything-goes approach to Africa's antidemocratic, corrupt regimes--including Congo.

Though the Central African nation and former French colony is one of the continent's richest nations in oil and other resources, it is also home to some of the planet's poorest people. The average life expectancy is 48 years. AIDS, malaria and other dread diseases are rampant; and the government shows little interest in improving conditions for the masses, apart from hosting the occasional international poverty reduction conference. Observers have noted that while the Congo exports an estimated $4 billion of oil annually, per capita income for its 3.8 million people is less than $700, according to the World Bank. The bank, which is now headed by former US deputy defense secretary Paul Wolfowitz, who is a leading Congo critic, ranks the country as one of the most corrupt--below Albania.

A newspaper article about Sassou's excessive hotel bills helped persuade Wolfowitz to postpone debt relief for Congo, which is heavily indebted even by third world standards.

All of which explains why the US, unlike China, will not be rolling out a red carpet for Congo's president during his week-long stay. Except for the possible photo-op, Washington is ignoring his visit; and even that meeting, if it occurs, will be between Bush and Sassou in his capacity as current president of the African Union. For the Congolese president there will be no state visit, not even a working visit--in short, no official honors for the head of a state that is long on oil but short on reform.

And America wants the oil. While the Congolese oil industry is dominated by the French oil company Total, followed by Italy's Agip, America's ChevronTexaco and Exxon Mobil are also active in the country; and some US politicians have been pressing for increased imports from Congo and other African oil producers as a way of reducing dependence on the volatile Middle East.

But Washington is not Beijing. And Corporate America is not China, Inc. Whereas China in dealing with developing nations has moved from revolutionary ideology to economic nationalism--business with imperial Chinese characteristics--the US has ironically become more ideological in its international relations.

In today's Washington, contrary to popular perceptions, politics is paramount, not business; and US diplomacy, for better or worse, is increasingly an instrument for changing, rather than preserving, the status quo.

Bottom line: this is no time to be selling red carpets in the US capital.

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Sunday, May 28, 2006

Intelligence Briefs: China in No Rush to End IP Piracy

United States trade officials say they are still waiting for signs that China is serious about fighting rampant intellectual property piracy. They could be waiting a long time. Our sources say real IP progress will take years. China will increasingly make the right noises; but meaningful action will occur only when it becomes absolutely necessary--meaning (a) when Beijing is ready to sacrifice the piratization industry for the sake of importing US high-technology products and systems necessary for the modernization and buildup of China's rising military, and (b) when China is further along in its planned transition to a so-called innovation economy, which will involve the export--and IP protection--of Chinese-made and branded high-tech products. Meanwhile, despite official promises and pronouncements, the piracy problem, like most major problems in China, is probably going to get worse before it gets better...

Latin America will continue to be a leading beneficiary of direct investment by Chinese companies, which last year spent $6.9 billion on overseas investments, reaching a cumulative total of $50 billion. Beijing is increasingly drawn to the region's raw materials, including oil, and growing consumer markets. Peru is an area of special interest: Chinese companies sees the current Peruvian presidential election frontrunner, Alan Garcia, as a man they can do business with. Look for stepped-up Chinese activity after his anticipated victory over ultranationalist plurality winner Ollanta Humala in the June 4 second and final round of voting. Germany, which is one of China's chief competitors in Peru, is also expected to go into high gear following a Garcia victory. Some large German companies are planning a number of big, environmentally friendly agribusiness ventures in remote areas of Peru....

China is preparing a new propaganda offensive against the universally admired Dalai Lama and his struggle for Tibet autonomy. Beijing intends to dredge up Tibet's feudal past to justify China's present-day repressive policies in the province, which the Dalai Lama's Tibetan government in exile considers an occupied nation. CCTV is said to be working on a documentary-style history of Old Tibet that will focus on the cruel oppression of serfs by tyrannical, wealthy monks; and state-run publishing houses are reportedly ready to crank out new novels and nonfiction books about the crushing backwardness of the Tibetan countryside....

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Saturday, May 27, 2006

China Ponders Propaganda Role for Non-Red Parties

Who said booming China can't compete with the United States, Europe, and Japan when it comes to innovation and creativity?

China Confidential has learned that state-sponsored think tanks are working overtime to come up with creative ways to constructively channel public discontent and dissatisfaction over corruption, inequality, and environmental degradation, among other issues, and also appear more democratic to overseas observers. One novel idea that could be under consideration, sources say, is upgrading the so-called consultative powers of the country's official non-Communist political parties.

They actually exist---eight in all. Though China is effectively a single-party oligarchy, it formally boasts a multiparty system. State-sanctioned non-Communist parties have been allowed and even encouraged to exist because of their internal and external propaganda value. And their usefullness to the security forces: it is generally assumed that the tightly controlled, colorfully named parties have historically been riddled with spies and informers.

Some of the groups have intriguing histories. The Revolutionary Committee of the Koumintang, for example, is a leftwing offshoot of the nationalist Koumintang that split from the party in 1948 during the Chinese civil war. With a registered membership of 53,000, the Revolutionary KMT claims to be the true ideological heir to Sun Yat-sen's political legacy; and the legendary leader's widow, the late Soong Qingling (pictured above), briefly chaired the party after siding with the Communists.

The official non-Communist parties belong to the Chinese People's Consultative Conference, a rubber-stamp advisory body (not to be confused with the rubber-stamp National People's Congress, or NPC), which could also play a role in a government play to influence public opinion at home and abroad. The likely message: contrary to foreign criticism, Chinese-style democracy is a reality, not a dream; key democratic institutions and organizations are already in place and only need to be built up and modernized (like the Chinese military).

An initiative involving the non-Communist parties would be in line with recently announced plans to hold provincial, county, city, and township elections for the first time, though the government has not said if the elections will be multiparty or multicandidate. (Our sources, as we have reported, say the elections, which will be held before the 2007 NPC meeting, will be multicandidate only.)

In addition to the Revolutionary KMT, China's other official, non-Communist parties are, in alphabetical order: the China Democratic League; the China Democratic National Construction Association; the Chinese Association for Promoting Democracy; the Chinese Party for the Public Interest; the Chinese Peasants' and Workers' Democratic Party; the September 3 Society; and the Taiwan Democratic Self-Government League.

Combined, the non-Communist political groups have a total reported membership of nearly 500,000--a tiny fraction of the 70 million members claimed by the Communist Party of China.

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Friday, May 26, 2006

Jagshemash! Kazakh Crude Pouring into China


Kazakhstan crude oil poured into China Friday as a giant pipeline linking the two countries began its first deliveries. The official Xinhua News Agency reported that Kazakh oil arrived at a Chinese station near the Alataw Pass in the far western Xinjiang region about 30 hours after pumping began.

The pipeline, which is initially expected to carry 10 million barrels a year before doubling when it reaches full capacity, is significant because (a) it provides a fresh source of oil for energy-hungry China; (b) it is the first time oil is being piped directly into China; and (c) it symbolizes the country's increasing influence in the former Soviet-controlled lands of Central Asia, where the United States has also been building influence.

More specifically, the pipeline project shows that China's involvement in the obscure Shanghai Cooperation Organization (SCO), which includes Kazakhstan, is paying off for Beijing big-time. The US has largely ignored or laughed at the intergovernmental grouping, as if it were an invention of the fictional Kazakhstan TV reporter Borat, played by the brilliant British comedian Sacha Baron Cohen (aka Ali G), whose wild, reality-show antics and faux-Kazakh gibberish--including his trademark "Jagshemash!" greeting--have made him a huge international star (and a banned figure in Kazahkstan).

But the SCO, like Kazakh crude, is no Borat joke. European and Asian analysts have watched closely as China has used the six-nation organization to advance an aggressive energy diplomacy. Recalling the Great Game of imperial intrigue and rivalry between Britain and Czarist Russia in the 19th century, China's policy is mainly aimed at securing stable supplies of oil, while also seeking to deny the US access to the vital resource. Though China's Communist Party rulers regard the US as a country in decline, they still see it as the only power on earth capable of blocking China's rightful rise to regional and ultimately global dominance, or hegemony. So Beijing's perceived interests include frustrating US plans and ambitions without needlessly provoking a confrontation with Washington.

The Kazakhstan-to-China pipeline presently runs from Atasu to the Alataw Pass and is nearly 1,000 kilometers long. It will triple in length, however, when completed in 2011 and will terminate at Dushanzi, where China's largest oil refinery plant is set to come on stream in 2008.

The pipeline, built by the Kazakh state oil company, KazMunaiGaz, and the Chinese National Petroleum Corporation (CNPC), represents a challenge to the regional energy strategies of Russia and the US. Russia has historically controlled export routes out of the landlocked central Asian republic; and the US has maneuvered for the bulk of Kazakhstan’s rising oil output to flow west--instead of east to China, north to Russia, or south, through Islamist Iran, to the Persian Gulf.

China financed the $700 million pipeline and is obligated to buy the oil it delivers. The project is in line with the so-called wellhead deals that China has been making in its global pursuit of oil. One supply source for the pipeline will be the fields owned by PetroKazakhstan, an independent producer bought by CNPC last year. CNPC paid $4.2 billion for PetroKazakhstan, a record for a Central Asian acquisition.

China and Russia are also negotiating terms for a proposed pipeline to deliver Siberian oil to China's Northeast, which could be built by 2008, and a cross-border natural gas pipeline, which may run through Heilongjiang in the Northeast or Xinjiang.

Booming China is the world's second largest oil importer after the US. Most of its imports currently come from the volatile Middle East and Africa; and energy security is a key objective of China's energy diplomacy.

Beijing's brand of diplomacy will certainly be on display when the SCO convenes for a summit meeting on June 15. Heads of state of the member countries will attend the meeting, which will be held in Shanghai.

Founded five years ago, the SCO now includes, in addtion to China and Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan. In 2004 and 2005, the group granted observer status to Mongolia, Iran, Indonesia and India.

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China Determined to Take Back Taiwan

Slowly but surely, the Taiwan Question, as China has historically referred to its bitter dispute with the breakaway, self-ruled island, is boiling down to this: What will the United States do when China attacks?

Notice we said "when," not if, because it is becoming increasingly clear that unless Taipei eventually, well, surrenders to Beijing, there will be a war in the Taiwan Strait.

This is not inside information. On the contrary--officials in Beijing are disturbingly open about their government's intention to finally finish off a bitter rival, whose de facto independence since 1949 has been seen as a humiliating, festering sore on the hide of an awakening dragon.

China's Communist Party rulers routinely brush off criticism of their military modernization and buildup by describing it as both defensive and "domestic"--meaning, targeting Taiwan--as if plotting to destroy a tiny democracy is an acceptable 21st century foreign policy objective. Rejecting the 2006 Pentagon report on China's alarming arms buildup, which was released this week, foreign ministry spokesman Liu Jianchao, for example, stuck to the defensive/domestic party line in a news briefing. China's arms, Lieu asserted, were only aimed at bringing about reunification with "splittist" Taiwan.

The US contends that rising China is seeking to project power way beyond its region. Among other things, US analysts accuse China of augmenting its long-range nuclear missile arsenal; and there is evidence that the world's most populous nation is planning to develop a deep, or blue, water navy to protect its global energy interests.

But Taiwan clearly remains the main focus of Chinese military activity. Beijing has nearly 800 missiles pointed at Taiwan and is adding approximately 100 a year. Already, China is capable of launching wave after wave of missile bombardments, striking all Taiwanese cities and military bases. China is also boosting its amphibious landing capabilities and acquiring weapons systems that are obviously designed to counter US intervention.

The US supports the status quo. But under the 1979 Taiwan Relations Act, Washington--while accepting Beijing's hoary "One China" principle--is also committed to helping Taiwan to defend itself against Chinese aggression by supplying the island with weapons.

With the release of the Pentagon report, the US let it be known that defending Taiwan could involve more than armaments. A senior defense department official told reporters that US military intervention is "a virtual certainty" in the event of a Chinese attack on the island.

Is Washington bluffing? Nobody knows--perhaps not even in Washington. But Beijing has been trying hard to convince the world that it is deadly serious about taking Taiwan back by any means necessary. In accord with its One China obsession, Beijing regards the island as a renegade province. An "Anti-Secession Law," adopted last year, authorizes use of force against Taiwan if it moves to formalize its independence, or, ominously, if peaceful reunification efforts fail.

The law's passage was provocative; and Taiwan's independence leaning President Chen Shui-bian responded with a series of provocative, pro-statehood gestures, the most important of which was scrapping a symbolically significant but long dormant national council charged with spearheading reunification with the mainland. The US was quick to criticize Chen, who quickly promised State Department officials there would be no more surprises. As if to drive home the point, the US also snubbed Chen by refusing to allow him a proper stopover on his way to visit countries in Latin America, where Taiwan still enjoys some diplomatic recognition. Chen's response to the snub, following his return home, came in the form of a speech in which he referred to China and Taiwan as separate nations.

Since then, Chen has been far from quiet. He has repeatedly made known his view that time is rapidly running out for Taiwan. More specifically, he has charged China with planning to attack Taiwan within a decade, when Beijing's beefed-up military is expected to be capable of swiftly and decisively conquering the island before the US could move meaningfully to defend it.

But with the Taiwanese president's popularity plunging because of financial scandals involving family members, he and his governing Democratic Progressive Party show signs of backing away from their push for formal independence. At the same time, the opposition Koumintang party, which basically supports reunification with the mainland coupled with assurances of autonomy, appears to be moving toward the so-called centrist--or consensus-- status quo position, which the US also favors as a matter of policy.

Trouble is, Beijing shows no signs of backing off from its insistence on reunification--or else. While Taiwan's independence leaning elements may be softening their stance, China is sticking with its hard line, and adding more missiles, though few experts think anything serious is likely to happen until the 2008 Beijing Summer Olympic Games have come and gone. (The Pentagon report warned China that an attack on Taiwan before the Games would trigger a US Olympic boycott.)

So barring a dramatic change in positions on the part of one side or another, it looks as if it will take nothing less than Olympian diplomacy to preserve the peace in the Taiwan Strait. Hopefully, some statesman--or stateswoman--will come up with a gold medal for a winnning effort.

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Thursday, May 25, 2006

US Tries Two-Track Approach to China

Parallel tracks.

In its approach to China, the United States apparently has two trains running, as an old American blues song goes.

On one track, the US defense department is raising red warning flags over China's ominous and opaque military buildup. The department's annual report to Congress on the subject, which was released yesterday, is detailed--and disturbing. It basically says China is rapidly developing the means to attack and defeat Taiwan, threaten Japan and other Asian countries, and challenge US military power regionally and internationally.

Hogwash, says China. As expected, it reacted sharply to the Pentagon report, insisting that its multibillion-dollar modernization is defensive. State media quoted foreign ministry spokesman Liu Jianchao as saying that China was "strongly resentful of and firmly opposed to ... the 2006 China Military Power Report."

The 58-page document, according to Liu, reflected a "Cold War mentality" and an attempt to "wantonly interfere in China's internal affairs."

The US, Liu was quoted as saying, should stop sending "any wrong signal to the splittist forces of Taiwan independence."

So much for the hard approach. On the softer of the two tracks, the US State Department is clearly stepping up diplomatic efforts to enlist China's help in the high-stakes nuclear standoff with Iran. Echoing their boss, US Secretary of State Condoleezza Rice, department officials describe their Chinese counterparts as "constructive" and "positive."

At the same time, Rice seems to be running her own hard-track train--up to a point. She told a politically conservative radio show in Washington that the US intends to keep pressuring Beijing over democracy and human rights issues. But Rice also said that the US is more upset by Russia's alleged vacillating on democracy than China's lack of progress in the first place.

Meanwhile, a Chinese official on Wednesday said Beijing opposes United Nations sanctions against Iran and supports the Islamist nation's right to develop a civilian nuclear power program.

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Tuesday, May 23, 2006

US Report Raises Red Flags Over Chinese Military

Who threatens China? What is the purpose of China's dramatic military buildup? What are China's true intentions toward its neighbors and other countries, including the United States? Who calls the shots in rising, changing China? Why is China upgrading its nuclear warfare capabilities?

For US defense planners, these questions are anything but academic, as shown by the Pentagon's annual report to Congress about China's menacing military modernization.

The 58-page report, which raises more red flags than a Chinese military parade, was released Tuesday.

"China's leaders have yet to adequately explain the purposes or desired end-states of their military expansion," the report says. "The outside world has little knowledge of Chinese motivations and decision making or of key capabilities" that have resulted in the military buildup."

According to the Pentagon, China is rapidly extending its military reach and buying more long-range aircraft and weapons that will allow it to attack and overwhelm Taiwan, threaten Japan and other Asian nations, and compete with--or threaten--the US.

Not a pretty picture.

And it gets uglier by the page. Echoing remarks made by US Defense Secretary Donald Rumsfeld during his visit to China visit late last year, the report estimates that China's defence spending is two or three times higher than the officially disclosed 2006 estimate of $35 billion, and questions alarming advances in Chinese nuclear arms.

China has regularly raised its annual military budget by more than 10 per cent since the early 1990s.

"What little public information China releases about defense spending is further clouded by a multitude of funding sources, subsidies, and cutouts at all levels of government and in multiple ministries," the report says. "Real spending on the military, therefore, is so disaggregated that even the Chinese leadership may not know the actual top line between civil and military products. Machinery upgrades for civilian production are often intended for improved military production. Weapons production costs are thus partially defrayed by State Council subsidies, rather than funded wholly through the military budget."

(If even the Chinese Communist Party leadership is in the dark about actual costs, who is in charge? Who runs China? The military? The party? Some supremely powerful, overlapping clique? The report does not attempt answers; and as foreign journalists who have lived and worked in China know, the identities and decision-making processes of the real powers-that-be are vexing mysteries.)

China says its military buildup is "domestic"--directed at self-ruled Taiwan, which Beijing regards as a renegade province--and the Pentagon report agrees that this is the case in the short run. Beijing has deployed some 710 to 790 short-range ballistic missiles opposite Taiwan, the report says, adding about 100 a year. China has also allegedly increased by about 25,000 the number of ground forces deployed to the three regions opposite Taiwan, and has upgraded the units with tanks, armored personnel carriers and artillery.

At the same time, Taiwan's defence spending has reportedly declined.

Bottom line: The cross-Strait military balance has shifted in China's favor.

More important from a US perspective, improvements in China's long-term nuclear strategy and precision weaponry "have the potential to pose credible threats to modern militaries operating in the region.''

Analysts have generally agreed that China has 18 missiles capable of reaching the US and 12 missiles capable of reaching targets in Russia and elsewhere in Asia but not in the US. The arsenal is assumed to be limited to liquid-fuel missiles that take a minimum of two hours to launch, eliminating the potential for a surprise attack against the US.

But the Pentagon report says: "China is modernizing its longer-range ballistic missile force by qualitatively upgrading and/or replacing older systems with newer, more survivable ones. China is introducing a new road-mobile, solid-propellant, intercontinental-range ballistic missile (ICBM), the DF-31 and the extended-range DF-31A, which can target most of the world," including the continental US.

In keeping with past practice, China is expected to condemn the Pentagon report as inflammatory propaganda and to make every effort to persuade critics and friends alike that Beijing's military buildup remains ... domestic.

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Article Accuses China of Faking $67 Billion in Trade

BusinessWeek published an article today that could have a major impact on the way the United States--and the rest of the world--looks at China's surging global trade surplus.

In fact, the article argues, that surplus may not be so surging, after all. Instead, it could be as fake as a made-in-China counterfeit luxury brand watch or designer handbag.

Mis-invoicing and transfer pricing--practices that deliberately disguise investment as trade, using Hong Kong as a transit point--may account for as much as $67 billion of the $102 billion trade surplus China reported last year.

In other words, the article says, a staggering sum could be phantom trade--money flowing into China in pursuit of potential profits from a projected rise in the value of China's managed currency, the yuan.

The article, which was written by Standard Charter Bank's senior economist Stephen Green, asks: "Why all the subterfuge?"

His answer: " China's capital account restrictions make it difficult to bring US dollars onshore and convert that money into yuan for domestic companies and ordinary Chinese people. But Chinese exporters and trading companies have a far easier time, due to the nature of their business. An exporter willing to exaggerate an invoice handed over to local authorities could bring far more hard currency into the country than warranted by the value of goods sold."

Yuan bulls beware: the implications of this could be enormous.

"First, China's booming trade surplus does not necessarily indicate new and real pressures for yuan appreciation," Green says. "As soon as the yuan reaches a point where expectations of appreciation disappear, China's trade surplus could suddenly be sharply reduced. Second, Beijing has said that it will try and bring down the trade surplus in 2006."

But as the smoke-and-mirrors trade is exposed for what it really is--speculative capital inflows--incentives and pressures to reduce the surplus could diminish.

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Eyes on Iran, US Softens Approach to China

Early warming?

Like winter turning into spring, relations between the United States and China seem sunnier, lifting spirits in both countries.

Reason: the US is dealing with China in a distinctly more diplomatic and nuanced way in the hope of influencing its position on the high-stakes nuclear standoff with Iran.

The approach appears to be working. US Congressional critics reacted negatively the week before last when the Treasury Department once again stepped back from branding Beijing a currency manipulator in the department's semiannual report to Congress. Instead of using the dreaded M word, which would have triggered tense and probably fruitless trade talks with China, Treasury Secretary John Snow expressed disappointment over the pace of yuan reform, while also noting signs of progress in the relaxation of currency controls that allegedly keep the yuan artificially low and unfairly boost exports.

China responded with a further loosening that allowed the yuan to briefly slip below the benchmark 8-to-a-dollar exchange rate for the first time.

Yesterday, US assistant secretary of state for East Asian and Pacific affairs Christopher Hill told an audience in Singapore that China's rising influence in Southeast Asia is not creating an environment of competition for his country.

"More China does not mean less US in Southeast Asia," Hill said.

Answering questions during a speaking engagement at the Lee Kuan Yew School of Public Policy, Hill denied the US is "in some sort of competition with China for the hearts and souls of Southeast Asia."

"In fact, we want Southeast Asia to have a good relationship with China," he said. "We do not see this at all as opposed to our interests."

The State Department official acknowledged that China's "rapid economic development and its rising political influence pose new challenges and opportunities to all the countries of Asia as well as to the United States." But he added that the US "can work with China throughout the world, including in Southeast Asia."

Washington "welcomes the emergence of a China that is peaceful and prosperous, and that supports international institutions," Hill said. "We are engaged with China ... on almost every issue that affects our broad strategic and economic interest."

The next step for China, Hill said, is to become a more responsible stakeholder in international affairs--except he did not exactly use these words. As if responding to criticism that the State Department's much publicized stakeholder term is inherently negative and heavy-handed, the official simply suggested it was time for China to take on a greater role in the "international system ... from which China has benefited greatly."

The international system, Hill explained, encompasses "constructive engagement with China" on issues ranging from Iran's nuclear ambitions and North Korea's nuclear weapons to the humanitarian crisis in Darfur.

While Hill was in Singapore, a US official told reporters in Beijing that Washington was considering easing regulations on American technology exported to China if the importers can show they are not using it for military purposes.

China has been lobbying the Bush administration to let it buy more American-made high-tech products, arguing that this would help balance the bilateral trade deficit. Chinese President Hu Jintao reportedly raised the issue in discussions with the US president when they met at the White House last month.

US undersecretary of commerce for industry and security David McCormick said Chinese companies that earn US "trust" could skip some bureaucratic oversight on presently restricted, dual-use technologies--meaning they can be used for either military or peaceful purposes.

McCormick made the remarks after a day of meetings with Chinese officials, including Minister of Commerce Bo Xilai.

Some analysts speculate that the US is informally but effectively coordinating its diplomacy with Germany. The country's recently elected chancellor, Angela Merkel, who was also visiting Beijing Monday, told reporters that China's president agreed with her that Iran should not possess nuclear weapons and that the dispute be settled diplomatically.

Merkel, who is visiting China for the first time, made her comments after meeting with Chinese Premier Wen Jiabao.

Chinese officials had no immediate reaction to the German leader's comments.

Privately, however, foreign ministry sources suggested that Merkel's account was accurate. If it's the case, China could be coming closer to US and European positions, despite its dependence on Iranian oil to fuel its expanding economy.

Until now, China has only suggested Iran should not have nuclear weapons, while defending its right to develop a peaceful nuclear program within international guidelines. Joining with fellow UN Security Council member Russia, China has blocked US and European efforts to subject Iran to sanctions if it does not stop its nuclear program.

Tehran concedes it is enriching uranium, saying it is strictly for civilian use. But the US, Germany, and other nations believe Iran is intent on developing nuclear weapons.

Germany, Britain and France are drafting a package of trade and other benefits designed to persuade Iran to stop enriching uranium; and Chinese officials say they hope the approach will succeed.

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Monday, May 22, 2006

Venezuela's Chavez Makes China Nervous

China is increasingly concerned that its ties to Venezuela's anti-American president, Hugo Chavez, could hamper efforts to build a worldwide alliance of developing nations.

China's so-called south-south strategy is important to the country's efforts to secure supplies of oil and other raw materials in competition with the United States, Europe, and Japan.

The strategy also seeks to slowly isolate and chip away at the power and influence of the US, which, in China's view, is the only country capable of preventing China's rightful rise to global economic and military dominance.

But Beijing takes a long view; as such, it is not interested in provoking the US as long as it remains a superpower.

In Latin America, the Chinese strategy is to avoid angering Washington while forging closer economic and even military relationships in the region--historically seen as within the US sphere of influence. In terms of national leaders, the ideal partner for China is a popular--but properly cautious--center-left leader. The presidents of Argentina, Brazil, and Chile fit the mold, as does Peru's Alan Garcia, who is favored to win the second and final run-off round in his country's presidential elections early next month.

Garcia's opponent, ultranationalist former army officer (and failed coup plotter) Ollanta Humala, who won a plurality in the first round, is exactly the sort of figure that China would like to avoid as it goes about its business in America's backyard. A populist demagogue, Humala is linked to a grassroots, family-run Incaist movement that promotes a racist ideology and hatred of "US imperialism."

The Chinese have taken a dim view of Humala from the outset of his campaign; but his recent plunge in popularity has Beijing's attention because the fall seems to have been accelerated by Hugo Chavez. The Venezuelan leader's strident support for Humala is seen as a kiss of death. According to a recent opinion poll, only 17 percent of Peruvians said they had a positive view of Chavez, whose threats to break off diplomatic relations with the Andean nation in the event of a Garcia victory pushed Peru's outgoing government to cut ties first.

"China would like to have its cake and eat it, too," a former foreign ministry official in Caracas told China Confidential. "China wants Venezuela's oil, but it does not want to be overly identified with Chavez. He is a crude embarrassment--no pun intended."

Energy-starved China plans to increase imports of Venezuelan crude in the context of an overall drive to diversify overseas oil supplies.

In 2004, China imported 12,000 barrels per day from Venezuela. This year, that number could increase more than 20 times--to 300,000 barrels a day--more than 10 percent of China's total oil imports.

China's largest oil company, CNPC (China National Petroleum Corporation), has licenses to explore for oil in Venezuela's vast Orinoco River belt, which sits atop giant, untapped deposits of heavy oil.

Thick, gummy heavy oil, which is found at varying depths all over the world, and has been produced for decades, is more expensive to extract and refine than light, or conventional, crude. But the recent rise in the price of light oil has generated renewed interest in the resource.

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Sunday, May 21, 2006

Da Vinci Code Meets China Meets Globalization: Hollywood Screenplay Seeks to Exploit All Angles

Here is a film that we can confidently predict will neither be made nor legitimately distributed in China, assuming it ever gets off the ground.

China Confidential has learned that a veteran Hollywood producer has been shopping a screenplay for a big-budget feature film about an international conspiracy to dominate the world--through China.

The script reportedly represents an attempt to capitalize on two "hot" topics--China and The Da Vinci Code--according to sources in the film business. But the overwhelmingly negative reactions of critics and industry insiders to the film version of Dan Brown's phenomenally successful Da Vinci Code novel--the picture was panned following its screening at the Cannes film festival--could hurt the project's chances for attracting studio financing and distribution.

On the other hand, nothing succeeds like success in the film business; and as of this writing, The Da Vinci Code, which cost a whopping $125 million to make, was set for one of the biggest box-office openings in motion picture history.

The story line of the proposed China thriller revolves around a staged, so-called synarchist plot to take over the world economy by first internationalizing and then destroying it in order to rebuild it to the liking of the conspirators, a disparate but somehow connected crew of bankers, billionaires, and political personalities. China is key to the fictional conspiracy because it is the only agent of change with the potential to, well, change the world.

Not too surprisingly, one of the characters in the screenplay is a former US Secretary of State with close ties to the powers- that-be in Beijing. He is also the mentor of the hero of the story--an Ivy League political science professor and China expert who bears a striking resemblance to real-life movie star, human rights activist and Tibet freedom advocate Richard Gere. According to the screenplay, we are told, the professor stumbles across the conspiracy and the crucial role that his intellectual idol plays in it in the course of ... you guessed it ... blogging ... about China!

The scenario's Da Vinci angle is as convoluted as the imagined conspiracy. Supposedly drawing on arguments set forth in The Sion Revelation--an intriguing nonfiction book by Lynn Picknett and Clive Prince about the esoteric theories that inspired the number-one bestselling novel--the China-focused film story reveals that the organization behind those theories was not an age-old religious order pledged to protect the shocking secret of a sacred Jesus bloodline, but a modern-day group of authoritarian one-worlders, known as synarchists, whose major achievement, apart from engineering the global economy, has been the phased formation of a "United States of Europe," more commonly known as the European Union.

Turns out, they concocted the whole sacred bloodline story as a cover for their real conspiracy; but the ancient order of assassins tale took on a life of its own with a series of obscure nonfiction books and articles that were briefly popular. Instead of dying out, as the synarchists had intended, their clever Da Vinci/Jesus hoax--the artist-inventor was whispered to be one of the grand masters of the ancient religious order---was unexpectedly reincarnated in novel form. And the rest, as they say, is history.

Or is it? The plot thickens, as it inevitably does in such matters. We were about to close this Sunday supplement-style piece--a welcome respite from writing about rising China's threat to the global environment, Taiwan, and attempts to lock up overseas oil supplies, among other far less filmic subjects--by noting that while a whacky conspiracy sript is making the rounds in Hollywood, a film based on a real masterpiece of fact-based fictional writing about China, the 1934 novel Man's Fate, has yet to be made following many attempts and several false starts. But ... then we remembered something about Andre Malraux, the late, great author of that classic, and asked ourselves: Could this, too, be a clue ... to everything? So it seems! Malraux's name tantalizingly surfaces over and again in ... The Sion Revelation ... as a possible ... but perhaps probable ... synarchist. Or fellow traveler of synarchists. Or synarchist sympathizer. Or someone who was born in France.


The point is, at long last, everything is finally coming into focus, including, perhaps, the hidden reason this blog is pseudonymously published and edited by someone whose blogger profile mysteriously lists ... Man's Fate ... of all the novels and nonfiction works in the world ... as one of only two favorite books.


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Chinese Military Testing Eco-Friendly Fuel Additive

The world's largest military force--China's People's Liberation Army (PLA)--has been testing an inexpensive foreign-made fuel additive, which has been designed for use in everything from cars to coal plants.

The liquid additive, called Green Plus, which sells for pennies per gallon, is said to significantly reduce emissions and improve fuel economy.

The additive is added in small quantities to fuel in order to create a more complete, cooler burn, according to its low-profile, privately held UK manufacturer, Green Plus, Ltd.

The company (which operates in the United States through an affiliate called Biofriendly Corporation) says the additive has undergone rigorous testing on five continents, with more than 1.5 billion miles of use on roads and oceans.

Greenplus representatives would neither confirm nor deny China's military testing of the additive. But China Confidential has learned that the PLA Ground Force, Air Force, and Navy have all experimented extensively with Greenplus, and that well-connected Chinese entrepreneurs have made overtures to company executives concerning contracts and possible financing deals involving overseas floatations and listings.

A source familiar with the talks told China Confidential that the "clear message was contracts could be had providing the right people were in the picture."

Focusing its energies elsewhere, Greenplus has begun to quietly market its additive to the maritime industry in Europe and the US. Tests show the additive is effective in reducing sulfur emissions as required by new European and US regulations.

The manufacturer has also been working with the trucking and automotive industries for some three years, demonstrating success in improving fuel economy and emissions of diesel trucks in the US, Europe, Australia, Mexico, South America, and Southeast Asia.

Fuel efficiency and clean air are critically important issues in China, which over the next two decades is expected to overtake the US as the top emitter of greenhouse gases causing global warming. By 2025, China is expected to have more than a billion cars on its roads--at least 200 million more than the current world fleet--if it matches US trends.

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Saturday, May 20, 2006

China Completes Construction of Mao's Yangtze River Dream Dam; Critics Call it Environmental Nightmare

China completed construction Saturday of a great new wall--the main span of the giant Three Gorges Dam, which is designed to power Shanghai and other cities on the booming eastern seaboard.

The dam is five times wider than America's Hoover Dam--regarded as one of the world's greatest engineering feats.

Completion of the 600-foot-high wall, which was broadcast live on state television, is a major milestone toward finishing the world's largest--and most controversial--hydroelectricity project, which also aims to control the devastating annual floods of the Yangtze River.

Flooding of the Yangtze--the world's third longest river--which Pearl Buck described it as the "wildest, wickedest" in her 1931 novel, The Good Earth--has claimed countless lives through the centuries. More than 3,600 were killed by floods in 1998, though there is debate over the extent to which the catastrophe was man-made owing to erosion and other forms of environmental damage.

Work on the $25 billion project began in 1997. Starting in 2009, it is expected to generate power equivalent to more than a dozen nuclear power plants or the burning of 50 million tons of coal.

But China's economy has grown so rapidly that the dam will supply just over 3 percent of the country's energy. When construction began, the goal was 10 percent.

The project's pedigree is impressive. Chinese Nationalist leader Sun Yat-Sen first proposed building a giant dam to tame the Yangtze back in 1919. In 1956, Communist Party Chairman Mao Zedong went for a swim in the river--commonly called China's Golden Waterway--and penned a poem to commemorate the event, envisioning a "great wall of stone" from which "a smooth lake" would arise among the narrow gorges.

The dam's name refers to the towering limestone cliffs of the Qutang, Wu, and Xiling gorges, which stretch for some 200 kilometers from Fengjie, in Sichun province, to Yichang, in Hubei province.

The ruling Communist Party hoped the project would confer prestige on China, symbolizing its rise to international prominence. But the project has been plagued by allegations of rampant corruption, mismanagement and incompetence.

The dam has been sharply criticized for its impact on the environment and surrounding communities. An estimated 1.3 million people had to be relocated to make way for the dam's slowly rising reservoir. Another 80,000 will be displaced in the coming months.

Environmental critics, at home and abroad, fear that the Great Helmsman's dream of a lake will in reality become a giant cesspool, as untreated waste from nearby cities or chemicals from factories build up. More than half of the sewage from Chongqing is pumped into the Yangtze untreated; and newly built water treatment plants have failed to stop slow stagnation.

The dam was built near a geologic fault line; and some experts warn that pressure from the reservoir, which will be 656 kilometers long when filled, could actually cause an earthquake.

Even the rubber-stamp National People's Congress was divided by Beijing's determination to go ahead with the project without consultation. In a dramatic display of dissent that has yet to be repeated, a third of delegates either voted against the dam or abstained from voting.

Critics contend that in addition to damaging the environment, the Three Gorges Dam destroyed many important archeological sites, including ancient temples and tombs.

Only a handful of China's rivers remain without dams.

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Friday, May 19, 2006

China Secures New Nigerian Oil Licenses

China deepened its investment in impoverished, notoriously corrupt Nigeria Friday.

State-run China National Petroleum Corp. picked up four oil exploration licenses for a total $16 million in bids at a public auction.

All told, the African nation sold 16 oil licenses to investors in return for promises of $20 billion in new infrastructure. Chinese and Indian companies secured most of the deals, but several Nigerian firms also obtained drilling rights in the deep water areas, many of which are close to big oil fields.

The sudden and successful participation of previously unknown Nigerian oil companies--obviously lacking offshore drilling know-how and expertise--raised eyebrows about the transparency of the bidding process.

Some auction observers shouted "419!" when the winning bids were announced, referring to the section of the country's legal code dealing with fraud. (419 is also shorthand for Nigerian-run Spanish Prisoner-style confidences schemes that have bilked victims out of billions of dollars over decades.)

China is already deeply involved in Nigeria, where attacks on oil installations and individuals by Niger Delta militants have curtailed the country's production by more than 20 percent. Last month, the militants threatened to target Chinese companies; but some analysts assert China is making protection payments to protect its interests, as China Confidential recently reported.

In related news, the African Development Bank agreed on Thursday to hold its 2007 annual meeting in Shanghai, reflecting the continent's growing economic ties with China.

China is a member of the bank--and an increasingly important customer for African oil, metals and other raw materials.

Chinese (and Indian) demand for the products has helped drive commodities markets to record highs, bringing an unexpected windfall to some African countries.

Clearly concerned about China's competitive strengths in what is shaping up to be a new global race for raw materials, American and other Western critics say Beijing's willingness to overlook human rights and transparency issues is holding back the development of democracy and rule of law in Africa.

China's stock response: business is business.

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Bloggertorial: China's Threat to the Earth

What is to be done about China's threat to the global environment?

In recent years, many of China's front-line victims--the left-behind rural poor--have arrived at an answer: rebellion. Apparently convinced that they have nothing to lose but their toxic chains, increasing numbers of farmers and villagers have been rising up against a repressive, rotten-to-the-core system that not only forces them from their lands, but poisons them to boot.

Astonishingly, there were over 80,000 mass protests in authoritarian China last year, compared with 10,000 just a decade ago; and most of these were in the countryside. Economic exploitation and inequality--mainly, crooked land deals and the growing gulf between rural and urban incomes and basic living standards--clearly caused most of the incidents. But environmental injustice--poisoning the poor in the name of Capitalism with Chinese Characteristics--fueled some of the most violent manifestations of grassroots anger.

The fact is, while Westerners whine and moan and complain about environmental degradation, China's penniless peasants have been taking matters into their own hands, often paying dearly for their outbursts of fury. Many protestors have been shot and killed; countless farmers and villagers have been beaten and jailed. Alarmed by the growing unrest, the central government has responded with beefed up security measures and promises of economic and environmental reform and the creation of a new and improved "socialist countryside."

But we can't resist repetition. The world claims to care about the environment; but while well-meaning American activists, for example, preach (and even practice) the merits and joys of activities like recycling and composting, China's rural poor are engaged in a desperate struggle for survival in the face of their country's so-called economic miracle.

To the disadvantaged residents of China's depressed rural areas, the country's miraculous ascent is actually a nightmarish descent--into hellish industrialization and forced urbanization.

The peasants see China plainly enough; in fact, they have no problem seeing the proverbial forest for the trees, because so many have been cut down. Environmentalists warn that at the current rate of timber use, China will soon have no forests left.

The problem, simply stated, is that China's ruling Communist Party is ruining the world. And it is ironically accomplishing this with the help and encouragement of greedy, globalizing foreigners for whom China is nothing more than a giant "play," as folks on Wall Street say.

The data is devastating.

China is a monster polluter. More than 20,000 chemical factories have been built along rivers and coastlines. The government admits that at least 100 are unsafe, understating the extent of the problem, according to most experts. Periodic toxic spills have left millions without drinking water for prolonged periods. Instead of cheap toys and textiles, peasants say, the chemical plants produce poisonous exports for industrialized nations that want the goods without the hazards.

China is the number-one driver of rainforest destruction, according to Greenpeace. China has become a synonym for deforestation: the world's most populous nation is the destination for nearly half the world's shipments of tropical hardwood logs. The negative impact on indigenous communities and cultures is incalculable.

China is populating the planet to death. The United Nations predicts that by 2031 China will have 1.45 billion people, with per-person income comparable with the US today. In terms of resource depletion and climate change, the consequences of China's population explosion and economic expansion are absolutely terrifying.

By 2025, China is expected to overtake the US as the top emitter of greenhouse gases causing global warming. China's carbon dioxide emissions will far and away exceed any reductions the rest of the world--combined--can possibly make. The country's oil consumption, based on present rates, will approach 100 million barrels a day, more than 16 million barrels over current global production. Around this time, China is expected to have more than a billion cars on its roads--at least 200 million more than the current world fleet--if it matches US trends.

Already, seven of the world's 10 most populated cities are in China. But Beijing bets it can grow its way out of a massive rural revolt by further depleting the countryside and transferring 300 million more Chinese to booming cities, many of which have yet to be built or even planned.

Already, China consumes more grain, meat, and coal than the US. China's overworked coal mines, which it promises to clean up and consolidate into safer and more efficient conglomerates, are the world's deadliest.

Already, according to Worldwatch, China consumes nearly a third of the world's rice, over 25 percent of the world's steel, and almost half of the world's cement.


Again we ask: What is to be done about booming, polluting, China?

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Thursday, May 18, 2006

Snow Job? Finance Head Fails to Impress Congress

Wednesday brought a fresh reminder of why Washington is rife with rumors regarding the possibly imminent departure of America's lackluster treasury secretary, John Snow.

In prepared testimony for the Financial Services Committee of the House of Representatives, Snow ... sort of ... kind of ... called on China to do more to reduce lopsided trade and investment imbalances by loosening restrictions on its managed (not manipulated) currency.

"Among emerging economies, China has a particularly important role to play in addressing global imbalances,'' Snow said. "We are intensively engaged with China in an effort to bring about greater exchange rate flexibility, balanced growth and financial sector modernization.''

So much for China and its yuan. The treasury secretary focused most of his attention on the problem of growing protectionism around the world; and few lawmakers seemed impressed by his rehash of old observations and arguments.

Last week, the treasury department again stepped back from branding China a currency manipulator, disappointing US lawmakers who blame the relatively high yuan for China's soaring trade surplus with the US. China's critics contend the currency is intentionally undervalued by as much as 30-40 percent.

China responded to the treasury's semiannual report--which, in keeping with the previous report, expressed "disappointment" with the pace of Chinese currency reform--by letting the yuan trade below 8 to the dollar for the first time.

That brief appreciation in the value of China's currency--the fact that a dollar could not buy 8 yuan--was played up in the US and Europe, but not in Japan. Its finance ministry denied the significance of the threshold. Tokyo simply seeks a more flexible foreign exchange regime, a senior official said, and it does not matter if the yuan goes up or down.

Not so, say our sources in Japan. They tell China Confidential that because of its relationship with the US, Japan has to appear to press China for currency reform. In reality, Tokyo prefers a weak yuan because if it gets too high it will hurt Japanese companies that have moved their manufacturing to China.

Given the currency issue's complexity and political potency, one cannot help but ask: Why would anyone in his or her right mind even want Snow's job?

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Wednesday, May 17, 2006

Opinion: China's Iran Policy Belies 'Peaceful Rise'

Business is business.

That is Beijing's party line response to criticism of its aggressive energy diplomacy, which, to a disturbing degree, is based on securing preferred access to oil from the world's leading rogue nations: Iran, Sudan, Nigeria.

Accent on access. Instead of being content with competing for oil on the open market, energy-hungry China is increasingly focused on so-called wellhead deals. Its investments in the Niger Delta (where China, as we reported last week, is suspected of paying protection money to militants whose attacks on oil installations and individuals have cut Nigerian production by more than 20 percent and helped drive up the world price of oil) and Islamic-leaning, genocidal Sudan are attempts to lock up crude at the source. In this context, Beijing's willingness to supply arms to human rights-abusing oil suppliers is generally taken to mean that in its global hunt for raw materials and markets, authoritarian China--unlike the United States--is cynically prepared to do whatever it takes to close a deal.

The PRC--Peacefully Rising China--goes the mantra, means business, not politics.

But if that is the case, how does one explain China's policy toward Islamist Iran? If aiding the mullahocracy is good business, the term needs to be redefined, and armies of MBA brainiacs--including investment bankers who have made fortunes raising money for China, Inc.--need to go back to school. China is the world's second largest oil consumer after the United States; and Iran's insane (there is no diplomatic way to put this) determination to develop nuclear weapons and repeated, Nazi-like threats to wipe Israel off the map not only help make oil more expensive; they threaten to push prices to levels that could be disastrous for the global economy. Beijing's analysis, as we have also said, is that there is a razor-thin daily surplus in the world of only two million or so barrels per day. A conflict with Iran--which the clerical-fascist Shiite regime seems bent on provoking--could remove its four million barrels of daily output and send oil prices soaring to the $100-$200 per barrel stratosphere.

Even if the situation does not spin out of control, and oil prices stay more or less where they are, how can the monumental money-drain stemming from high oil prices be a good thing for a country with an export-driven economy that is in part sustained by a managed currency kept artificially low in order to give exports an unfair edge? Iran and other major producers have been making out like bandits as a result of the oil price hike while consumers--including China--have suffered.

So, how does one explain China's Iran policy?

The answer is: politics, defined as the struggle for power. More than money, power drives China's foreign policy. Economic clout is of course critically important, but it is only part of the equation. After its century of political humiliation by foreign powers and decades of domestic Mao madness, culminating in the Cultural Revolution that plunged the country into chaos and destroyed millions of lives, China sees itself not only as a rival to US super-power, but also, given Chinese theories about America's decline, as the ultimate, uber-superpower, also known as The Hegemon. America's fall is inevitable, in China's view, but even the inevitable needs nudging.

From this perspective, there is more to China's relations with Iran than oil, important as the resource is to China's energy-starved, expanding economy.

Iran, in addition to being China's second largest oil supplier, after Saudi Arabia, is China's main strategic ally in the Middle East--and a key to reducing US military and economic power in the region and across the world. This is why China has supplied Iran with arms, supported it diplomatically in its high-stakes nuclear standoff with the US, and sponsored close cooperation with it in the increasingly important (but, in the US, largely overlooked) Shanghai Cooperation Organization, while also investing staggering sums in Iranian oil and gas deals--from refineries to exploration. Iran helps to fuel China's political ascent as well as its economic rise.

As the US, in China's eyes, is the only country capable of blocking its quest for long-term global dominance, anything that weakens or diminishes the US--short of seriously hurting its consumption of Chinese exports, because one does not want to kill the golden goose before its time--is good for China. Frustrating a US push for sanctions against Iran unless it halts its nuclear enrichment program contributes nicely to a steady erosion of US power, prestige, and influence.

China is prepared to pay a hefty premium in pursuit of power. Its national oil companies are ... national. They may be listed; they may boast slick Websites with stock quotes and investor relations sections, just like big US oil companies, but China's state-run energy enterprises are controlled by the Chinese government. At the end of the day, they answer to officials, not stockholders.

It's an important point, often overlooked by China enthusiasts enthralled by the country's economic expansion. In contrast with the US, China is efficiently organized to pursue power above profits when it serves its national interest. In the name of Capitalism with Chinese Characteristics, the government--really, the ruling Communist party--has partially privatized its industrial giants to compete overseas. These hybrid corporate giants actually have as much in common with large US companies, say, as China's planned pseudo-democracy (scroll down for the stories) has with real democracy.

The bottom line: if China is serious about wanting to be seen as a peacefully rising, responsible stakeholder (blending Beijing and Bush administration lingo), it could start by revamping its energy diplomacy; and if the US wants to successfully compete with China, it could begin by reviewing some dangerously simplistic notions about Chinese capitalism.

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Monday, May 15, 2006

From Competing Candidates to Competing Factions? China's Spinmeisters Say It's Just a Matter of Time

Incredibly ironic is an understatement.

Just a day ahead of the 40th anniversary of the start of Mao's mass murdering Cultural Revolution, which plunged China into years of chaos and pitted faction against faction within the ruling Communist Party (and children against their parents), the heirs to that organization announced a plan that is designed to encourage and expose differences among presumed party factions.

This time, however, the party's top leadership is not plotting a great proletarian uprising of students and workers against entrenched party bureaucrats, but instead envisioning what could be called a great bureaucratic reform--based on the ballot box.

The overall objective nowadays is not to firmly establish Marxism-Leninism-Mao-Zedong Thought as the ideological foundation of ... everything ... which was the case during the Cultural Revolution, but to secure the current cocktail of Stalinist socialism and state/crony capitalism as the dominant faith of the party and country for years to come.

For the first time since coming to power in 1949, as we reported yesterday (scroll down for the story), the party in command of the world's most populous nation intends to allow local elections. Leading up to the 2007 National People's Congress meeting, elections will be held for officials on the provincial, county, city, and township levels.

Party officials did not say if the elections will be multicandidate or multiparty; but China Confidential has learned the polling will be strictly multicandidate---meaning managed competition among so-called scientifically selected Communist candidates. The party claims it has developed a supremely "scientific" method for choosing qualified candidates.

There is more: sources say Beijing is serious about eventually allowing internal factions that could resemble pseudo-parties to field candidates. The idea, which may seem strangely contradictory to outsiders, is to seek to strengthen the party's grip on society by gradually widening the frame for prescribed political activity.

Parallel to the gradual widening of the frame, however, the party plans to narrow the space for ideological and even spiritual and artistic expression. The recent crackdowns on domestic and foreign media, including Internet sites, the Catholic Church--e.g. the government's dispute with the Vatican over appointing bishops to the state-sponsored church without papal blessing--and a handful of contemporary artists whose work strayed into dangerous ideological territory, and coming crackdown on foreign law firms operating in China are all signs of a renewed determination to tighten controls in areas that matter most in official eyes.

According to the new concept, the men who run the 70 million-member Communist Party--and China-- will continue to decide direction and make policy, while younger, lower-level leaders will increasingly be permitted to meaningfully debate policy implementation and the pros and cons of specific programs, and, on the local level, actually have to compete for the votes of party members.

Party propagandists can be expected to cast the plan for local elections in democratic terms--proof that political reform is indeed following economic reform. From multicandidate to multifaction, they are certain to ask, what could be more democratic?

The answer is multiparty elections, which would be truly revolutionary. But that reform is not in the cards.

Pressed by an American reporter to explain the party's unwavering opposition to multiparty elections, one official spinmeister was ready with a response certain to resonate among rulers of democratically challenged developing nations.

"Gradually, the differences between our systems will become less obvious," he said. "After all, in the US today you really have only one party, the property party, except it is divided into two factions that call themselves Democrat and Republican."

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China to Allow Local Communist Party Elections

China is taking a significant step toward political reform--at least, that is what Beijing wants the world to believe.

The ruling Communist Party announced Monday that it would hold local elections for the first time. An offical described the move as "an enormous step."

Leading up to the 2007 National People's Congress (NPC) meeting, elections of leaders at provincial, county, city and township levels will be held.

The party, which claims 70 million members and has ruled China since 1949, did not say if the elections would be multiparty or multicandidate; but sources tell China Confidential the decision is definitely to allow the latter, not the former.

China's rulers may be ready to tolerate tightly managed local popularity contests--and open factional rivalries--to a degree--but they are clearly not prepared to permit Western-style voting for parties representing competing political platforms and ideologies. No way.

The announcement is important, however. Prescribed multicandidate elections may not be democratic; but neither are they totalitarian. In that respect, Mao must be spinning in his grave.

Multicandidate elections could reflect a need to address growing factional differences within the party, particularly the rise of an assertive Left faction that feels China has already traveled too far down the capitalist road.

Multicandidate elections could also serve as a kind of carrot, holding out hope for China's middle class and intellectuals that economic expansion and reforms will one day be followed by meaningful political reforms, maybe even democracy as the term is understood in the West.

Externally, the propaganda value of this kind of polling could be quite significant, potentially influencing opinion in (post-)industrialized and developing nations alike.

Multicandidate elections should set the stage nicely for next year's NPC gathering, making it seem like even less of a rubber stamp session than this year's meeting, which made front-page news around the world on account of the rare window it opened on internal ideological disputes, especially over the crucial, related issues of private property and agrarian reform.

By allowing party members to vote for their favorite candidates, even at the local level, China could also enhance efforts to hold itself out as an alternative development model. The message to developing nations will be that, contrary to the (failed) global democracy crusade of the United States, social stability and economic growth are of utmost importance; and a single-party system (or, for that matter, a virtually single party system, except for tiny parties permitted only for image and propaganda purposes) could work just fine, thank you, provided it includes avenues and outlets for controlled internal expression and disagreement.

In this regard, Beijing could be adopting old ideas floated long ago by sympathetic critics of two very different repressive regimes--the USSR and Imperial Iran. Years before both systems fell, attempts were made to persuade Soviet leaders and the autocratic Shah to reform their ruling parties by allowing multicandidate elections and, in the case of the Rastakhiz (Resurrection) Party, to transform it into a means of upward mobility for great masses of Iranians left behind by the monarch's White Revolution. The proposals and suggestions fell on deaf ears.

But China seems to be listening....

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Dollar Down, Yuan Up, Fears Everywhere

Actions speak louder than words.

China's managed currency, the yuan, is creeping up, while its leaders vow to resist foreign pressures for reform. They publicly bristle at continued US criticism for not widening the band within which the yuan is allowed to trade. Privately, however, Chinese officials express satisfaction with the US Treasury Department's decision to again step back from branding Beijing a currency manipulator in the department's semiannual report to the US Congress.

The US dollar is declining in value, while US leaders insist they are committed to a strong currency. They express unshakable faith in the market, accepting that this is likely to mean a weaker dollar.

But not too weak, the US hopes. The Federal Reserve's comments when it raised interest rates to 5 percent last week suggest that, with inflation already above 3 percent, the US central bank is concerned about the impact a cheaper dollar is having on the cost of imports.

US lawmakers huff and puff and threaten to strike at China with punitive--read protectionist--measures aimed at hurting their exports, which are unfairly subsidized, critics of China charge, by its intervention in the foreign exchange markets, meaning to a large degree buying dollars to keep the yuan low relative to the US currency.

An artificially low yuan makes Chinese exports comparatively cheap and easier to sell to price-conscious, credit-strapped US consumers.

The lawmakers talk a good game--and may even allow themselves to be swept into action--but they plainly would like to avoid taking drastic action against China because of the law of unintended consequences. The senators threatening to slap tariffs on Chinese goods are angry at China's role in weakening US manufacturing--and causing US job loss--but also afraid of disrupting the trade that essentially makes it possible for China to help finance the US economy.

And fear, more than anything else, is in the spring air this year: fear of hard landings everywhere and in every sector.

Booming China increasingly fears a hard landing--also known as a correction--in manufacturing.

The US and other countries fear corrections--also known as crashes--in apparently overheated commodities, stock and real estate markets. (One possibly overlooked sign of an equities/commodities bubble about to burst: mid-range investment houses are scooping up piles of cash on London's secondary AIM market, raising hundreds of millions of dollars for emerging market investments, especially deals involving minerals, mining and energy.)

It seems we could be in for a long, hot summer.

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