Tuesday, January 06, 2009

China's Strategic Position

China is repeating the mistake made by the USSR in the 80’s by challenging the United States to an arms race with an economy unable to support the expenditures. (Arbel) Chinese banks are insolvent and the prosperity seemingly evident in gleaming Chinese cities has not made it to the 23% of the population who are unemployed. (Wolf) The Chinese might be able to, for a time, produce armaments comparable to those of the US, but there is no way the Chinese defense output could match an aroused US defense industry abetted by the Koreans and Japanese.

The Chinese economy is hollow. The Chinese government decided to allow banks to ignore non-performing loans in the interest of keeping manufacturing companies open, confident that Western consumers would continue buying goods to allow the economy to grow out of all the bad paper the banks are carrying. However, Western consumers stopped buying goods in October, and the Chinese economy started to grind down. Given the miserable fundamentals of the Chinese economy and the intrinsic corruption, there is little likelihood that additional foreign capital will do anything but line the pockets of those at the top.

It is possible that China could reform their economy to make it to actually competitive with the US, but that would require the ruling class to relinquish their corrupt control on banking and manufacture. I think that is an unlikely occurrence short of revolution. However, when China descends into revolution as history predicts, contemporary analysts will be as flummoxed as they were by the breakup of the USSR, wondering how they missed the signs so apparent in retrospect.

China is not really a competitor for the United States in developing indigenous technology. However, given that extensive Chinese espionage in the United States “saves China the time and cost of researching and developing advanced technologies,” (Claburn) there has been some question as to whether China will be able to close this gap. The answer remains unknown.

Sources cited:

Arbel, David and Ran Edelist (2003) Western intelligence and the collapse of the Soviet Union, 1980-1990: Ten years that did not shake the world. London: Frank Cass.

Claburn, Thomas (2007) Chinese espionage cited as top risk to U.S. technology industry. InformationWeek (November 19) http://www.informationweek.com/news/security/government/showArticle.jhtml;jsessionid=GRWRJSCRV2IDKQSNDLOSKH0CJUNN2JVN?articleID=203103255&_requestid=188221 accessed 3 January 2009.

Wolf, Jr., Charles, K. C. Yeh, Benjamin Zycher, Nicholas Eberstadt, and Sung-Ho Lee (2003) Fault lines in China’s economic terrain. Santa Monica, CA: RAND Corporation.