The China Thread

[Admiral Yi]

You think he was referring to the evil stakeholders, who only care about pulling up their stakes?

[jimmy olsen]

You think he was referring to the evil stakeholders, who only care about pulling up their stakes?

The odds are 110%

[Admiral Yi]

Do you understand what stakeholder means Timmy?

[Razgovory]

Do you understand what stakeholder means Timmy?

Oh, I know this one.  It's a person who kills vampires.

[jimmy olsen]

Do you understand what stakeholder means Timmy?

I understand what CdM thinks stakeholder means, which means I am able to easily comprehend his statement.

[CountDeMoney]

More validation for Asia Pivoters: China is making huge inroads when it comes to building its arms industry and the U.S. is losing out. Look at this NYT Page Oner today, by Edward Wong and Nicola Clark, reporting from Beijing:

The New York Times
October 20, 2013

China's Arms Industry Makes Global Inroads
By EDWARD WONG and NICOLA CLARK

BEIJING — From the moment Turkey announced plans two years ago to acquire a long-range missile defense system, the multibillion-dollar contract from a key NATO member appeared to be an American company's to lose.

For years, Turkey's military had relied on NATO-supplied Patriot missiles, built by the American companies Raytheon and Lockheed Martin, to defend its skies, and the system was fully compatible with the air-defense platforms operated by other members of the alliance.

There were other contenders for the deal, of course. Rival manufacturers in Russia and Europe made bids. Turkey rejected those — but not in favor of the American companies. Its selection last month of a little-known Chinese defense company, China Precision Machinery Export-Import Corporation, stunned the military-industrial establishment in Washington and Brussels.

The sale was especially unusual because the Chinese missile defense system, known as the HQ-9, would be difficult to integrate with existing NATO equipment. China Precision is also subject to sanctions from the United States for selling technologies that the United States says could help Iran, Syria and North Korea develop unconventional weapons. A State Department spokeswoman said this month that American officials had expressed to the Turkish government "serious concerns" about the deal, which has not yet been signed.

Industry executives and arms-sales analysts say the Chinese probably beat out their more established rivals by significantly undercutting them on price, offering their system at $3 billion. Nonetheless, Turkey's selection of a Chinese state-owned manufacturer is a breakthrough for China, a nation that has set its sights on moving up the value chain in arms technology and establishing itself as a credible competitor in the global weapons market.

"This is a remarkable win for the Chinese arms industry," said Pieter Wezeman, a senior researcher at the Stockholm International Peace Research Institute, which tracks arms sales and transfers.

In the past, Chinese companies have been known mainly as suppliers of small arms, but that is changing quickly. From drones to frigates to fighter jets, the companies are aggressively pushing foreign sales of high-tech hardware, mostly in the developing world. Russian companies are feeling the greatest pressure, but American and other Western companies are also increasingly running into the Chinese.

"China will be competing with us in many, many domains, and in the high end," said Marwan Lahoud, the head of strategy and marketing at European Aeronautic Defense and Space, Europe's largest aerospace company. "Out of 100 campaigns, that is, the commercial prospects we have, we may have the Chinese in front of us among the competitors in about three or four. They have the full range of capabilities, and they are offering them."

The Stockholm institute released a report this year on global weapons transfers that found the volume of Chinese conventional weapons exports — which included high-end aircraft, missiles, ships and artillery — jumped by 162 percent from 2008 to 2012, compared with the previous five years. Pakistan is the leading customer. The institute now estimates that China is the fifth-largest arms exporter in the world, ahead of Britain. From 2003 to 2007, China ranked eighth.

China's foreign arms sales are also rising fast in dollar terms. According to IHS Jane's, an industry consulting and analysis company, Chinese exports have nearly doubled over the past five years to $2.2 billion, surpassing Canada and Sweden, and making China the world's eighth-largest exporter by value.

The total global arms trade revenue in 2012 was estimated to be $73.5 billion, and the United States had a 39 percent share, according to IHS Jane's.

Xu Guangyu, a retired major general in the People's Liberation Army and director of the China Arms Control and Disarmament Association, said in an interview that the push by Chinese companies to develop and sell higher-tech arms was "a very normal phenomenon."

"In arms manufacturing, China is trying to increase the quality and reduce price," he said. "We're driven by competition."

Mr. Xu said that besides pricing, Chinese companies had another advantage: they do not "make demands over other governments' status and internal policies." He added: "Our policy of noninterference applies here. Whoever is in the government, whoever has diplomatic status with us, we can talk about arms sales with them."

Chinese officials know that China's encroachment on Western-dominated military markets raises concerns. When asked about the missile-defense sale to Turkey, a Chinese Foreign Ministry spokeswoman said, "China's military exports do no harm to peace, security and stability," and do not "interfere with the internal affairs of recipient countries."

The largest Chinese arms production companies, all state-owned, declined interview requests. Their finances are opaque, though there are some statistics on their Web sites and in the state news media.

The China North Industries Group Corporation, or the Norinco Group, said on its Web site that its profits in 2012 were 9.81 billion renminbi, or about $1.6 billion, a 45 percent increase from 2010. Its revenues in 2012 were 361.6 billion renminbi, or about $59 billion, a 53 percent increase over 2010. Another company, the China South Industries Group Corporation, or CSGC, said on its Web site that it had profits of about $1 billion in 2011, on revenue of about $45 billion, both big increases over 2008.

China's investment has been heaviest in fighter planes — both traditional and stealth versions — as well as in jet engines, an area in which China had until now been dependent on Western and Russian partners, said Guy Anderson, a senior military industry analyst in London with IHS Jane's.

"China has been throwing billions and billions of dollars at research and development," he said. "They also have a strategy of using the gains they get from foreign partnerships to benefit their industrial sector. So they should not have any trouble catching up with their Western competitors over the medium term, and certainly over the long term."

He estimated that China was still a decade away from competing head-to-head with Western nations on the technology itself. But Chinese equipment is priced lower and could become popular in emerging markets, including in African and Latin American nations.

"We are in an era of 'good enough' — the 90 percent solution that will do the job at the best possible price," Mr. Anderson said. "In some cases, that may even mean buying commercial equipment, upgrading it slightly and painting it khaki."

New customers for Chinese equipment include Argentina, which in 2011 signed a deal with the Chinese company Avicopter to build Z-11 light helicopters under license. Mass production for the Argentine military began this year, and 40 helicopters are expected to be built over the next several years. The value of the contract has not been made public.

Companies selling drones, another focal point in the Chinese arms industry, are ubiquitous at arms and aviation shows. At an aviation exposition in Beijing in late September, one Chinese company, China Aerospace Science and Technology Corporation, had on display a model of a CH-4 reconnaissance and combat drone, with four models of missiles next to it.

Though the drone had been "designed for export," one company representative said, there were no foreign buyers yet. The company was still being licensed by the government to sell the aircraft abroad. He added that the drone was not yet up to par with some foreign models, and that the engine was a foreign make, though other parts — including the missiles — had been developed in China.

The Aviation Industry Corporation of China, or AVIC, had on display a model of a Wing Loong, the best-known Chinese drone export, which sells for about $1 million, less than similar American and Israeli drone models. An article in People's Daily said the export certificate for the Wing Loong, or Pterodactyl, was approved in June 2009, and it was first exported in 2011.

At the Paris Air Show in June, Ma Zhiping, president of the China National Aero-Technology Import and Export Corporation, told Global Times, another state-run newspaper, that "quite a few countries" had bought the Wing Loong, which resembles the American-made Predator. Clients were in Africa and Asia, he said.

Two fighter jets made by Chinese companies are being closely watched by industry analysts and foreign companies for their export potential. One is Shenyang Aircraft's J-31, a fighter jet that Chinese officials say has stealth abilities. A People's Daily report last month said that the J-31 was being made by Shenyang, an AVIC subsidiary, mostly for export, citing an interview with Zhang Zhaozhong, a rear admiral in the Chinese Navy. In March, the airplane's chief designer, Sun Cong, told People's Daily that the J-31 could become China's main next-generation carrier-borne fighter jet.

The other jet is the JF-17, a less-sophisticated aircraft that an American official said had been in the works for about two decades in an "on-again, off-again" project. The jet was ostensibly the product of a joint venture between Pakistan Aeronautical Complex and China's Chengdu Aircraft Industry Corporation, also an AVIC subsidiary, but China did the real work, said the official, who spoke on the condition of anonymity because of the secrecy surrounding military projects. So far, Pakistan is the only client, and the official said he believed Pakistan had made a "political decision" to buy it.

China is Pakistan's biggest ally, and each relies on the other to help counter India. Besides the JF-17, the two nations have had official joint production agreements on a frigate, a battle tank and a small aircraft.

A defense official from Japan, a territorial rival of China that monitors its arms trade closely, said Chinese jets still had big shortcomings that could hurt international sales; most notably, China cannot make reliable engines or avionics, he said. The JF-17 uses a Russian engine.

"I believe they can make a few very good engines in the laboratory, but they can't make it in the factory, kind of mass produce it in factories, because of lack of quality control and maybe experience," he said.

He added that Chinese engineers had been trying to develop an engine, the WS-10, a copy of a Russian model, but had been having problems.
[/b]
It is not uncommon for customers to overcome weaknesses in Chinese manufacturing by buying Chinese platforms and outfitting them with better Western equipment. Algeria placed an order last year for three Chinese corvettes, but is outfitting the ships with radar and communications equipment from Thales Nederland, a unit of the Thales Group, based in France. Thailand has been awarding contracts to the Saab Group, based in Sweden, to upgrade Chinese-built frigates, said Ben Moores, a senior analyst at IHS Jane's.

This year, a Chinese company was competing against foreign counterparts, including at least one American company, for a $1 billion Thai contract for naval frigates, but lost to Daewoo of South Korea.

As China moves to catch up with established Western rivals, competing not only on price but also with comparable technology, Hakan Buskhe, chief executive of Saab, said his company and others would be likely to find themselves under pressure to cut their own research and development costs to lower pricing — a trend that could benefit North American and European governments looking to squeeze more ability out of shrinking defense budgets.

"We need to be able to develop more for less," he said.

[Josquius]

I can't help but think China are following Gilette tactics.

[The Brain]

The Chi-Coms sell more guns than we do? That shit ain't right.

[The Minsky Moment]

I thought the Turkish deal was not a done deal yet.

Also I believe the key selling point for the Chinese proposal was greater scope of local (Turkish) manufacture of components and other "offsets"

[The Minsky Moment]

Trials against prominent anti-corruption campaigners began today.  This follows a sweep against prominent bloggers "Big Ys" who criticized Party corruption as well.
Xi's revivial of self-criticism, 'rectification' and other hoary Maoist nostrums also been well covered.
May be too early to tell, but looks increasingly like Xi is just Bo-lite and the Party leadership is in a reactionary phase, at least at the political/civil society level (there are some signs of willingess to move forward gradually on economic reform).

[Camerus]

Well, the Party has promised "unprecedented" economic reforms at the upcoming Third Plenum. 

Re:  the self-criticism and other Maoist type campaigns, I imagine Xi believes there is simply no other way (other than liberalization of the political system which is not an option) to curb corruption and abuse on the part of Party officials.  Of course, it is not likely to be terribly effective.  The system is utterly rotten, as the only reason to join the Party now is self-enrichment and personal power - and the people know it.  At least this way the Party can show that it is trying to improve the conduct of its officials, with the added hope that, hey, maybe it will actually make a dent in the ethics of its members.

[Jacob]

Well, the Party has promised "unprecedented" economic reforms at the upcoming Third Plenum. 

Re:  the self-criticism and other Maoist type campaigns, I imagine Xi believes there is simply no other way (other than liberalization of the political system which is not an option) to curb corruption and abuse on the part of Party officials.  Of course, it is not likely to be terribly effective.  The system is utterly rotten, as the only reason to join the Party now is self-enrichment and personal power - and the people know it.  At least this way the Party can show that it is trying to improve the conduct of its officials, with the added hope that, hey, maybe it will actually make a dent in the ethics of its members.

That's the positive view. The more cynical view is simply that he's demonstrating and thus reinforcing his power.

[Camerus]

Well, the Party has promised "unprecedented" economic reforms at the upcoming Third Plenum. 

Re:  the self-criticism and other Maoist type campaigns, I imagine Xi believes there is simply no other way (other than liberalization of the political system which is not an option) to curb corruption and abuse on the part of Party officials.  Of course, it is not likely to be terribly effective.  The system is utterly rotten, as the only reason to join the Party now is self-enrichment and personal power - and the people know it.  At least this way the Party can show that it is trying to improve the conduct of its officials, with the added hope that, hey, maybe it will actually make a dent in the ethics of its members.

That's the positive view. The more cynical view is simply that he's demonstrating and thus reinforcing his power.

Yeah, no doubt reinforcement of his authority is part of it too.  Any oligarch who has - arguably to an extent greater than his two predecessors - managed to gain greater control of an organization like the CCP's ruling structure knows a few things about maintenance and building of power...

[jimmy olsen]

I can't help but think China are following Gilette tactics.

Didn't the Soviets sell more than the US during the Cold War.

The West, especially the US is peddling luxury goods, it's only natural they'll have smaller market share. 

[The Minsky Moment]

Good little article in the FT today, here is an excerpt I found interesting:

The government can tell regional officials that it wants more innovation, more consumption and less investment, but in their annual cadre evaluations about 70 per cent of the points are awarded for raising GDP and avoiding any unrest or embarrassing scandal in their jurisdiction.

Few points are given for stated government priorities such as cleaning up the environment, in part because it is so difficult to measure success

This gets to the limitation of a one-party system, no matter how well staffed and run.  The only way to get feedback on performance is to measure outcomes, and so there is a natural and unavoidable tendency to privilege the priorities that can be most easily measured.

That is not a huge problem in early developmental stages, where the key priority is to lift people out of grinding priority.  A straight GDP target does a reasonably good job.

But China is past that point and transitioning from the need to focus on problems of poverty to problems of affluence.  Things like environmental quality, workplace safety, educational quality and equity, quality provision of health services (symptomized by the fact that doctors in China tend to be poorly paid, relatively low social status, and subject to alarming incidents of violence from disgruntled patients), affordable quality housing, elder care, ample and diverse leisure options, etc.  These are things whose outcomes are not easily trackable by simple quantitative metrics.  They all are strongly correlated with overall quality of life, and hence in a competitive political system there is likely to be strong feedback through the electoral process, and in the proliferation of NGO activity.  But in a political system with a party monopoly and strong constraints on NGOs, the ability to get feedback on these softer outcomes is much more limited.

No country without very substantial mineral wealth has ever been able to cross the developmental threshhold to became an a truly affluent nation while still maintaining a monopolized political authority.  The experience of Taiwan and Korea further suggests that the PRC cannot bank on a cultural exception.   Yet the preliminary indications are that the Xi regime has no intention of building on the limited and mostly localized experimentation with electoral competition by prior post-Mao regimes.  The PRC is about to cross into unprecedented territory.