Worldpower China - internal dissent spills over into international relations

Posted in United States | 05-Apr-10 | Author: Ian Adie

"China-based hackers have long been attacking not only US Defense"
"China-based hackers have long been attacking not only US Defense"
Search engine Google's threat to withdraw from China attracted worldwide attention to the dangers of doing business there; its shares dropped 6% and those of its local rival Baidu rose by 40%. But the stiff jail sentences passed on sales executives of Anglo-Australian miner Rio Tinto on changing and dubious charges of taking or giving bribes etc.; are more important indicators of how the rest of the world must delve into and deal with who pulls the strings behind the scenes in the PRC and why it now looks at one moment confrontational, at the next moment more in favour of "harmonious" international relations. The real principals in the trial of Australian citizen Stern Hu and his colleagues were China's Big Steel corporations and the "Communist Party" bigwig and "princeling" connections they were using, in the context of inner-Party succession struggle (in preparation the forthcoming leadership renewal of 2012), to stop smaller privately-owned steel mills getting access to quality iron ore at fair prices. Big Steel, like other State-owned (or State-owning?) corporations, has close connections with top brass in the armed and Security forces. No wonder Rio Tinto brought in Henry Kissinger to help them deal with the PRC military-security-industrial complex. As we go to press, clarifications on the case and trial are still being sought by the Austrlian Government, and others, as US attitudes to China also harden.

Chinese army officers have been calling for retaliation against America's arming of Taiwan by all sorts of "oblique means and stealthy feints", including sales of US bonds. Behind this aspect of the Sino-US cold war lie many years of "stealthy" interstate cyber-warfare and espionage, but also struggles for control between power structures within States, such as in China the military-industrial-propaganda complex and in the USA the "financial oligarchy".
Democratic or not, Governments face similar dilemmas on when and how to rein in harmful effects of their "stimulus" measures against the economic crisis. They would like to use the crisis instead to introduce "reforms". But they face opposition, if not sabotage, from the entrenched factional interests. Newly-emerging forces such as the internet can influence outcomes, depending on how they are handled.

Lessons of the Chinese steelmen trial

Rio Tinto iron ore negotiating team leader Stern Hu is an Australian citizen, but clearly the PRC considers such individuals of Chinese descent as subject to Chinese "law" just as much as the other members of his team who are its citizens. Hu was condemned to 10 years jail allegedly for taking bribes (originally, for giving them) and stealing commercial secrets. The latter issue was dealt with in camera, the court being closed to the consular witnesses who should have been in attendance, under international agreements signed by Beijing in 1999-2000. As eminent Chinese law specialist Jerome Cohen points out, this tells us that Chinese "domestic law", read clout of tycoons with "connections', may be expected to overrride all international treaties and agreements. But the underpaid judiciary is riddled with bribery and corruption and so, as veteran China specalist Willie Lam told Australian ABC TV, is the whole of Chinese industry. The Rio executives had to work in that environment where everyone knew that a "good deed fee" of US$1 per tonne of ore had to be paid by smaller steel mills and eveb larger private ones to get a longterm contract witn the big iron ore supplers.

It appears that they were accused of giving information from meetings of the China Iron and Steel Association and production plans of steel mills to Australian ore sellers, so that they knew China's price negotiating positions in advance, as the Ministry of Commerce had complained about a year ago. According to a security official told the Australian Age newspaper (27 Mar 10) that President Hu then personally authorised investigation of Rio Tinto. The real issue is that Hu Yishi, the son of his paternal cousin Hu Jinxing, is chairman of Hong Kong Company Kai Yuan, which last year was used by billionaire Du Shuanghua to transfer there about one third of the assets of his private Rizhao steel company, trying to prevent its takeover at a fraction of its market price by the provincial Government of Shandong.

At the time the Rio men were arrested, the other "richest man in China" Huang Gungyu, was arrested along with several close allies of President Hu's perdecessor and rival, Jiang Zemin, and of his ally in the Standing Committee of the Central Committee, Zhou Yongkang. Now, Zhou runs the Politics and Law Comittee. in charge of the Public Security and legal apparatus. His equivalent in Shanghai is the nephew of Jiang Zemin, Wu Zhiming. These men were thus in a position to initiate proceedings ostensibly against Rio Tinto, but for the embarrassment of President Hu. Because of the allegedly countless bribes taken by the Rio salesmen, the only one for which evidence was given, was 70 million yuan admittedly given to Stern's colleague Wang Yong by the above-mentioned Du Shuanghua of Rizhao Steel, so as to secure ore on the side for his private mill. Wamg was sentenced to 14 years.

State of Cyberwar; Behind Copenhagen - and Climategate

Reports on censorship by the People's Republic of China (PRC) Government of Google, coupled with internet hacking, finally highlighted, in January 2010, the worsening of relations between the two so-called superpowers: last year's much-heralded "G2" or interdependent "Chimerica".

But more important conflicts rumble behind the uproar, inside as well as between the two states.

Firstly, Google searches themselves bring up literature on uninterrupted, interstate asymmetric "unrestricted (better, unlimited) warfare" That is, chao xian zhan: literally leap limits war, including cyberwarfare, as was explicitly advocated some years ago by two Chinese Air Force colonels, Qiao Liang and Wang Xiangsui in their book published by the People's Liberation Army in February 1999.

China-based hackers have long been attacking not only US Defense and other Government sites, but those of industrial corporations; not just in the US, but in Europe and, for example, India.

Secondly, the question arises, as in the case of Russia: cui bono [to whose benefit]? Or, rather, who is really in charge in the PRC or in the jurisdiction from whence the attacks originate? Without the connivance or support of what State elements - e.g: the military or Public Security - could these cyberattacks on foreign targets be made?

The Center for Strategic and International Studies (CSIS) in Washington, DC, put out a report at the recent Davos economic forum on how some 600 critical infrastructure enterprises in 14 countries claim that their IT systems are under "repeated attack by high-level adversaries". Robert Gates of the US Department of Defense and its Quarterly Defense Review of 1 February 2010 have made the same point.

Sir David King, former top science adviser to the British Government, speculated that the hacking of emails casting doubt on the "science" relied on by the United Nations Climate Change panel (IPCC) was too sophisticated to have been done by anyone other than a foreign intelligence service, with the aim of sabotaging the Copenhagen conference. (See below.)
In history, information censorship and espionage for a period enabled authoritarian governments to achieve two objectives: (1) stifle "dangerous thoughts" in domestic politics, while (2) outsourcing to the capitalist or "free enterprise" world the market action, ergo innovation and technological productivity, which was also stifled at home by the censorship, but essential for sustainable economic development.

The USSR, essentially a military dictatorship, like pre-war militarist Japan, developed by stealing, reverse engineering, copying, and improving on "Western" technology; the same method I saw in action during 1970/80s visits to State-owned PRC enterprises (SOEs).

The Soviet juggernaut, once hailed as a rival model to capitalism, eventually seized up. When will it be the turn of the vaunted China model?

In my visits to China, I noticed the "State" (guojia) was a fuzzy concept in the PRC even for the cadres who led me around those SOEs. Now, to paraphrase Lenin: who really owns whom?

Beijing's bureaucratic-capitalist alphabet soup is no more wholesome than that of its predecessor, the Nationalist KMT (Guomindang/Kuomintang). The KMT on Taiwan already went through the process of economic development undermining the authoritarian Government, despite last-ditch resistance by the military, in the same year that Beijing's "gang of old" sent in the People's Liberation Army in to reverse the trend toward liberalization.
Analysts scent rifts between elements of the formerly communist "Chinese Communist Party"; some still try to "command" as if they were running a command economy. That clan or faction may be partly identifiable with SOEs including Big Oil, the military/public security/propaganda complex and coastal urban elites in cities (especially Shanghai, once the fief of Jiang Zemin, the predecessor and rival of the present Son of Heaven, Hu Jintao). From time to time elements of the Army and propaganda apparatus have blatantly defied or ignored Central Government policy.

On the other hand, a more liberally-educated and possibly Gorbachev/Medvedev-type group associated with Hu and Wen Jiabao may be linked to an entrepreneurial, '"market" China emerging at the grassroots. It may be partly identifiable with the peasant-migrant and other smaller-business private-sector workers.

After the 1989 crackdown, and then even more under the cover of the global (or rather northern hemisphere) financial crisis and consequent massive bank-lending to the big boys, parallel with a crackdown on political dissent, "China's ruling politico-corporate complex" reverted to bashing the small guys, re-nationalizing and concentrating industry, notably in the key coal-mining area. (What's yours is mine at the coalface" as the Australian newspaper put it. 25 January 2010)

However, just then Hu Jintao surprised China-watchers by showing his face in Shanghai for the first time for some two years. They also noted the creation of a new body packed with Hu groupies to run energy policy instead of a Jiang protégé who was found guilty of corruption. Could it mean that a reverse for the hard-liners in the inner-party struggle on how to "use, restrict and transform" the crisis? They have ways to strike back.

The PRC's "stimulus-bubble predicament": SOEs and the vicious loosen-tighten bank loan cycle.

"China now looks at one moment confrontational, at the next moment more in favour of "harmonious" international relations."
"China now looks at one moment confrontational, at the next moment more in favour of "harmonious" international relations."
As discussed above, Australian iron-ore exporters have suffered fallout from tussles between the Central bureaucracy and the SOE steel mills, which have their own ideas about pricing. The Sumo-wrestler-like "State-owned" corporations rely mainly on bank loans; so the Central Government is trapped in a vicious cycle of:
1) Extending stimulus/credit to the behemoths under their pressure to "keep the economy's wheels turning", (rule No.1, the squeaky wheel gets the grease), but thus depriving the real economy/private sector/small business and citizens (who really made the 1980s miracle); and then
2) Restraining bank lending or fear of creating excessive debt and capacity,inflation and "asset bubbles". The first time they cut lending, foreign investors smartly withdrew some $348-million out of the PRC and contributed to the world-wide stock market sell-off: along with what looked to the southern hemisphere like Pres. Obama's populist version of the Volcker plan to rein in the "excesses of Wall Street".

At the Davos World Economic Forum in January 2010, the caucusing bankers fought back. Some said the plan would be hard to implement; others said it would create new risks.

A new "lesson from Japan" on stopping change

Analogies used to be drawn with Japan's travails in past "lost decades" and the recent attempts at reforms in the US as well as the PRC. Now The Economist does not find this very helpful. It was argued that the US financial crisis was not structural, as in Japan, but caused by correctable policy mistakes.

In his State of the Union address, US Pres. Barack Obama proposed to correct mistakes which he claimed had brought the US to a "lost decade". In both Japan and the US, it is the backlash of the polititico-bureaucratic structure against attempted "change" or reform that is most interesting.

Under the long post-war rule of the Liberal Democratic Party (LDP), the Japanese media endured a form of censorship by the system of "press clubs" (kisha kurabu), with "cozy ties" to the big ministries. The new leadership of "shadow shogun" Ozawa and his Prime Minister Hatoyama has promised to "clean up post-war governance", including the cozy clubs.

Tokyo's chairborne shogunate strikes back

Optimists hailed "glasnost", but the elected leaders immediately faced scandal charges from the powerful Public Prosecutor's office. This was not about the usual white-elephant construction company dango (bid-rigging) corruption, it was the bureaucratic "immune system" striking back to protect itself from challengers, ie: the elected politicians. (phrases from Karel van Wolferen, "The Enigma of Japanese Power", 1989 and a former prosecutor now teaching at Meijo University) Ozawa observed "if this ... is tolerated, Japan's democracy will become a ghastly place in the future".

The US also "trapped in a box": stimulus vs. deficit

In his State of The Union Address on January 29, 2010, US Pres. Barack Obama had to tread a cautious line, balancing today's demands against tomorrow's imperatives: between the conflicting objectives of continued stimulus and budget retrenchment. On the one hand, Pres. Obama was talking up job creation, on the other talking up a budget freeze. His reform plans also suffered a serious blow from the judiciary. This came on top of (1) His Party's defeat in the election for the Massachusetts Senate seat vacated by the death of Edward Kennedy; and (2) negative reactions at home and abroad to his "tough line" on banks "too big to fail", seen in the southern hemisphere as lurching into left-populism".

The decision of the US Supreme Court to strike down 100-year-old law limiting campaign funding by labor unions and business corporations, opened the floodgates, as Obama said, for an "unlimited amount of special-interest money into our democracy".
With brilliant but unconscious timing and irony, Justice A. Kennedy argued against Government limiting political speech, even in the interest of fighting corruption. "The censorship we now confront is vast in its reach", he wrote.

"The limits to verbiage"

Returning to campaign mode on "change", in his State of the Union address, the President focussed on the economy and jobs, without revealing his hand as to how he proposed to resolve the contradictions. "A waste of a podium", as The Economist said on January 30, 2010. There was not much, either, on foreign affairs or world leadership; although on the pet issue of "climate change", Pres. Obama noted that the PRC had been rightly focussing on renewable energy.

His much-reported clash with the Copenhagen assembly may have had something to do with the PRC blocking, in the interest of national sovereignty, of the UN bureaucracy's unpublished draft treaty to establish some sort of "supra-national governance" in the name of tackling climate change.

According to Lord Monckton (in a private meeting in Melbourne, Australia, 1 February 2010) the Copenhagen organizers initially refused to admit the existence of this document, which he had to extort from them with threats of "questions in the House [of Lords]", etc.

The deficits of trust and Obamas's secret weapon

Pres. Obama declared: "(Americans) face more than a deficit of dollars right now. We face a deficit of trust, deep and corrosive doubts about how Washington works that have been growing for years."
Doubts have also been growing about the integrity of "the science" used by the United Nations International Panel on Climate Change (IPCC) to explain it in terms of "carbon emissions" and greenhouse gases, The Chinese intelligencers may be excused for acting on such doubts. (See for example research by two German atmospheric scientists, casting doubt on the whole "greenhouse" theory as violating the Laws of Thermodynamics: Gerlich G. and Tcheuschner R. "Falsification of the Atmospheric CO2 Greenhouse effects Within the Frame of Physics", International Journal of Modern Physics, Vol.23/3 March 2009) .

In the face of the threat to US democracy which Pres. Obama identified (ie: rivers of corporate money/TV ads etc. in effect buying Congressmen to block his agenda), on world leadership Pres. Obama settled for the US not being No. 2, and concentrated on the home front.

He may now revive his "secret weapon" for effecting not just change, but fundamental change in America. In effect, a "permanent army" of 13-million activists: the OFA. It started as the innovatively internet-based movement of young "progressives" which helped him to victory in the 2008 Presidential election, now reorganized as the Organization for America, as described by his former associate in Chicago community organizing, Bob Creamer.

A Republican might fear it as another instrument of "censorship". At Copenhagen, Lord Monckton witnessed how a squad of young American "save the Planet" activists violently broke up a scientists' meeting on climate change. In tears, a German delegate told him he had not seen such a thing since the Germany of the 1930s. Absit omen.

China's other predicament: the crumbling firewall

The Shanghai Stock Exchange may look as if the pin is poised to prick the bubble. But in the longer term, the behavior of the millions of internet users may be more ominous for the PRC Government. They rallied to the defense of Google; ie: against censorship. Professor Yasheng Huang of MIT asserts (in the Washington Post/Age 31 March 2010) that "In China, web censorship is a hopeless cause", with 9 million domain names under ".cn", 200 million internet users and more than 700mn. mobile subscribers, many of whom use their phones to surf the Web.

Censorship of the Net is likely to create an unintended mass movement among the surfers, who will rapidly learn how to "jump the wall" (fanqiang) or rather tunnel under it, using VPN, virtual provider networks, the system of using servers outside PRC Government control (how about in Tomsk?). What if an "Organization for China" stealthily comes online?

Post scriptum. Since the above was written, 1) under the heading IPCC BLOW TO GLOBAL GOVERNMENT, the Asian Wall St. Journal (11 February 2010)_has shown that the Indian Government shares the view here expressed on the credibility and real agenda of the UN climate bureaucracy and its head, Dr. Rajendra. Pachauri. While setting up its own rival system, It has astutely "supported" him in order to perpetuate "a weak IPCC ...twisting in the wind". "The failure of the IPCC shows that sovereignty still lies with the people, and not with the aspirants for global government". 2) The Chinese might agree? The latest session of the usually rubber-stamp National People's Congress produced some more open discussion than hitherto, and the boss of Qongqing, son of Bo Yi-bo the finance minister in the early days of the regime, was feted like a Western politician for fighting corruption; in his Sichuan province - a long way from Shanghai and Beijing.


"The ideal aim would be to globally hold a new Bretton Woods"
"The ideal aim would be to globally hold a new Bretton Woods"
To implement measures they know to be vital and effective, political leaders (especially of the poll-driven democratic variety) must start by side-stepping massive obstruction by vested interests: and in the USA for example, the lobbyist-stampeded "childishness, ignorance and growing incoherence of the public at large" (Newsweek/ 6/2/2010) and hence their elected representatives. But the tide may be turning.

Three key areas demand immediate attention:-

Security of electronic communications

Security of energy supply, essentially electricity

Security by detoxification of financial systems, global and nationa

Net security

Nations and corporations must act on the results of the recent US "shock-wave" simulation. It showed the urgent need for coordinated legal and administrative/institutional structures to deal with cyber-hacking of communications both official./military and private/commercial and the internet by criminals and/or State actors as "an Act of War".

Energy security

Along lines suggested in the cover story in the Scientific American(November 2009) priority must be given to the practical development of renewable energy from wind, water (e.g. run-of-river hydroelectricity as in British Columbia) and geothermal sources (WWG). Cutting, and eventually cutting out, generation of electricity and moving of vehicles by burning stuff is worth while as an end in itself. The authors say it can reduce world demand for electricity from 16.9 million megawatts to 11.5 mn mw by 2030. It will cost a lot, but less than "business as usual" plus "carbon emissions reduction" schemes now mooted.

It may be objected that WWG electricity would involve expansion of transmission lines in the grid, but that can be mitigated by widespread generation of electricity on-premises with solar panels and/or ceramic fuel cells. Examples of the latter are the "BloomBox" already in use by firms in California, and the cheaper BlueGen domestic-sized power generator, developed in Australia by Ceramic Fuel Cells Ltd.(CFU/ASX) and manufactured in Germany. As for Solar energy. it has so far proved more practicable on the roofs of dwellings/buildings etc. than as a massive source of baseload power for the grid; Spain's experiment with that proved ruinously expensive.

The US has already shown the example for others to follow of reviving nuclear energy as a temporary baseload measure, and some years ago ran a successful "cap and trade" scheme to stop pollution of the air by SO2 and NO2 (not CO2), which were causing acid rain (Economist 6 July 2002). This problem and its solution was stressed at the recent meeting of the Chinese National People's Congress ; China is far ahead of other countries with practical development of clean energy.

Democratic politicians cannot avoid taking into account the still widespread, if diminishing, public faith that "something can be done" to stop or mitigate/tackle "climate change" by reducing emissions of "carbon" aka CO2 or "greenhouse gases" from coal-fired power stations. If believers are prepared to pay for WWG thinking "to save the planet", it will be a good thing even if "the science" as now developing proves them to have been deluded.

Following the example of India's Government , pace guru Rajendra Pachauri , responsible Governments should immediately withdraw effective support from the UN's IPCC he heads, and re-allocate funds to set up independent climate and WWG enquiries and research and - and publicise who gains and loses from the present "carbon trading market" of $126 billion per annum. The reappraisal announced by the IPCC itself will not suffice.

Towards clean finance and sound money.

In dealing with the financial meltdown in the northern hemisphere, what Economics (the markets) demand, Politics (the vote markets) cannot accommodate under the status quo. J.M.Keynes famously fudged the outcome of his policies because "in the end we'll all be dead". His end duly came and now his debt-deficit Frankenstein is in unsustainable intensive care. But it seems that Federal Reserve Bank chief and historian of the Depression Ben Shalom Bernanke has begun, cautiously, to wind back the paralysing process.

The ideal aim would be 1) to reform national fractional reserve banking (e.g from 10% in the US towards full reserve) and 2) globally to hold a new Bretton Woods and bring in a non-dollar world reserve currency; either on a commodity or gold/bimetallism standard. But gold would require a rate of US$6000 to the ounce, or 9,000 if China and India joined the system. Expert advice is that it would be feasible if Central Banks bought more gold. India led the way last November with purchase of 200 metric tons of gold from the IMF, and China has been stealthily stockpiling it for years ( 7 September 2009). Since the above was written, the head of the IMF has called for a world currency, similar to its existing SDRs.

Meanwhile, in jurisdictions as far apart as South Carolina and Indonesia grassroots attempts recently appeared to replace unredeemable paper money with units of precious metals. Parallel currency of gold dinars and silver dirhams coined in Indonesia is already also circulating in Australia, Malaysia and Singapore among Muslims who believe that the Messenger of Allah banned the use of paper money. This experiment will be worth watching. It is to be hoped authorities will not stifle it.