Archive for the 'China' Category

Sectoral slowing

Friday, March 13th, 2015

Fortune:

Chinese industrial production grew only 6.8% in January and February, the slowest since 2008. Real estate sales plunged 15.8% in value. Fixed-asset investment, the principal driver of Chinese growth, recorded anemic growth at 1.05% and 1.03% in January and February, respectively (compared with 1.49% and 1.42% in the same period last year).

This fellow has his work cut out for him.

Rudd: “The strongest Chinese president since Mao”

Thursday, March 12th, 2015

Xi Jinping, the last party plenum in 2014 with its entrenching of the anti-corruption movement into the fabric of Chinese law, and the restoration of party legitimacy are among the subjects of a remarkable interview of the 26th PM of Australia, Kevin Rudd (who speaks Mandarin and is known in some circles as 陸克文). Some rough excerpts: “All of us who’ve grown up in study of Western political science assume the $14,000 per capita income threshold; then people demand more liberties, and what you end up with is one form of democratic government or other. Xi Jinping does not have that as his game plan for China. What he is attempting is to defy history. Frank Fukuyama’s point, we end with liberal capitalism is not where China is going. Xi Jinping is seeking to advance a radical alternative. We need to be very cautious in saying this is inherently unsustainable. The folks at the center of this are determined to prosecute this model.” On a perhaps unrelated but interesting note, the SCMP reports that Xi Jinping just reshuffled the leadership at China’s version of the Secret Service.

Update: the WaPo covers some similar territory.

15 years that went by pretty fast

Saturday, March 7th, 2015

NYT:

entire industries have emerged and seized the dominant positions in the Nasdaq index even as their predecessors faltered. Apple, now the world’s largest company by market capitalization, barely registered in 2000, and the first iPhone was not announced until 2007. Over a billion smartphones were shipped in 2014.

Google, which now ranks third and dominates the market for Internet search advertising, went public in 2004 at $85 a share, giving the company a market value then of $23 billion. Today, its market capitalization is over $360 billion, and its shares were trading this week above $570.

Facebook, now No. 5 in Nasdaq’s ranking, dominates social networking, another industry that did not exist in 2000. It went public less than three years ago, and is already valued at over $180 billion.

Had the Nasdaq index itself not been transformed by innovation and competition, it would be nowhere near its previous peak. The stocks of many of the surviving companies, like Microsoft and Intel, have not come close to the levels they reached before 2000. That means investors who bought and held the stocks of individual companies in 2000, as opposed to broad mutual funds tied to the Nasdaq or index funds like the QQQs, are still underwater

Some things are going really well and some are going really badly. Hard to know where we’ll be in another 15 years.

Very unusual, and so forth

Wednesday, February 4th, 2015

Strong words from the Gallup CEO on the ridicuoulsly low labor force participation rate. Guy’s not with the program. What’s up with that? And the UN reports more horror from ISIS. Finally, China cut reserve requirements. That’s it. Things along the line of the UN report are so awful that words fail.

Fast

Wednesday, January 28th, 2015

Reuters

The company sold 74.5 million iPhones in its fiscal first quarter ended Dec. 27, while many analysts had expected fewer than 70 million. Revenue rose to $74.6 billion from $57.6 billion a year earlier.

Profit of $18 billion was the biggest ever reported by a public company, worldwide, according to S&P analyst Howard Silverblatt. Apple’s cash pile is now $178 billion, enough to buy IBM or the equivalent to $556 for every American.

Apple Chief Executive Officer Tim Cook said the Cupertino, California-based company would release its next product, the Apple Watch, in April.

The iPhone did not exist a decade ago. We wonder if official measures of productivity are way off today, much less than is actually happening. The instantaneousness of everything has its large downsides, but we think that historians may find that this current period of economic downturn and dislocation would have been far worse without the vast power and speed of these tiny talking computers.

Of course productivity is roughly defined as an increase in output when inputs remain constant. Most of the uses of the tiny computers in supply chain reductions, energy conservation and optimization, shorter and more accurate decision algorithms, etc. have yet to be discovered or implemented. Therefore, even with the ridiculousness of loons at the EPA etc., the economy might actually do well.

China changes

Sunday, December 28th, 2014

FT:

Beijing lifted controls on credit and flooded the economy with cash, much of which was funnelled into an expanding property bubble. The result was a construction boom and an unprecedented increase in total debt to GDP from 147 per cent at the end of 2008 to 251 per cent by the end of June this year, according to estimates from Standard Chartered. Credit expansion has slowed in recent months but is still growing a lot faster than GDP while providing less and less growth for each renminbi borrowed…Despite many years of extreme overcapacity and falling profits – the price of steel is now less than the price of cabbage in China – steel production in China was up 5.4 per cent in the first nine months of this year. Bankruptcies are another area where the pain has not yet really begun.

NYT:

Mr. Xing borrowed heavily to expand. The debt could be serviced as long as coal prices were high, but they began to fall in 2012 as the economy slowed. Mr. Xing sought to diversify, using his close ties with local officials to lease farmland and build apartment blocks, small dams, walnut plantations and a paved, solar lamp-lit road from the city to his home village. When coal prices collapsed, Mr. Xing’s company filed to restructure $5 billion in unpayable loans. The housing blocks are still concrete shells, and farmers say that the walnut plantations are not mature enough yet to harvest and that Liansheng owes them money. Mr. Xing was detained in March, and his whereabouts is unknown.

GE China CEO:

China is going through some fundamental changes. The next decade or two or three will be very different. If you look at some of the challenges the country is facing, they’re very much lined up with where GE’s core competencies are. Energy demand is going to continue to increase. Urbanization is going to continue. There will be more roads and more airports. There are definitely more people aging. Quality and affordable health care will be a big priority for the government. The point here is that, our portfolio and our technologies, they are a good fit…GE has over 18,000 employees in China today. Over 90% of employees are local…the direction the new administration is taking the country is the right one. They are trading the speed of growth for the quality of growth, shifting to more consumer-oriented growth.

Reuters:

China’s trade will grow 3.5 percent in 2014, implying the country will fall short of a current 7.5 percent official growth target, according to a report on the Ministry of Commerce’s website that was subsequently revised to remove the numbers. The initial version of the report published on the website on Saturday, which quoted Minister of Commerce Gao Hucheng, was replaced with a new version that had identical wording but with all the numbers and percentages removed…

Foreign direct investment will amount to $120 billion for the year, the earlier version of Ministry of Commerce report said, in line with official forecasts. The earlier version of the report also said outward non-financial investment from China could also come in around the same level. That would mark the first time outward flows have pulled even with inward investment flows in China, and would imply a major surge in outward investment…The earlier version of the report also predicted that retail sales growth would come in at 12 percent for 2014, in line with the current average growth rate.

Stratfor:

The rules that Beijing issued Dec. 22 will require local governments above the county level to create special departments for registering ownership and land use rights, housing and a variety of natural resources. They will mandate that local authorities keep entries electronically and in print and that they update them regularly. These records will then be subject to both central and provincial oversight. According to news reports, the regulations will require property owners to register their holdings with local authorities. Anyone found guilty of “abuse of power” or otherwise failing to fully disclose their holdings will be prosecuted…

the central government’s effort to expand a property tax scheme, which it is currently being piloted in Chongqing and Shanghai municipalities, to the national level. If effectively implemented, the effects of such a tax on China’s property markets would be manifold. Such a tax could provide a crucial supplemental revenue source for local governments, which are responsible for the vast majority of government-related expenditures in China today. Similarly placing a regular tax on homeownership would incentivize those who own more than one property to put their additional properties to productive use. Currently, homebuyers pay taxes at purchase but not thereafter. This means that many treat second and third homes as investments rather than as sources of income through rent. The new tax would create the basis for a more stable and sustainable rental market and curb extreme property speculation…

Beijing’s efforts to widen a municipal bond pilot program currently in progress in 10 regions and cities across the country will also be critical. By opening municipal bond markets, central authorities aim to create new ways for local governments to raise capital. This would allow these governments to repay outstanding debts and to cover new expenditures, further reducing their reliance on land sales for revenue generation. Beijing will need to implement bond markets and the national property registry in tandem over the coming years. This is essential. For a national property registry to be effective in curbing speculation, a municipal bond market must be in place. This would give investors new avenues for generating reasonable returns on their investments…

Opposition to these and other reforms still in the planning stages will run high. Most objection will come from local governments and a range of local-level actors — particularly property developers and speculators. Municipal governments will hesitate to carry out top-down reform initiatives that, in spite of long-term benefits, will likely result in direct revenue loss, slowing local economic activity and causing a rise in unemployment. Local government officials, too, are often directly and indirectly tied to property developers and speculators. Because of this, they will hesitate to carry out measures that either limit their own financial prospects or implicate them in illegal activity.

Stratfor addressed some related issues a few months ago. This is impressive stuff; these are difficult and complex changes. Obviously the changes are essential to getting to a self-sustaining economy and not the one that was 70% dependent on exports for success. Good luck!

Their trajectory and ours

Sunday, December 7th, 2014

On our flight to Hong Kong today, there was no internet, so what’s today’s American going to do? Read? Pshaw! We watched TV. One show was called Shades of Life, the Winter’s Fairy-tale episode. It’s a Horatio Alger story of a guy with a very tough childhood becoming a successful entrepreneur. He sure knows how to clean a toilet and polish an office; fortunately his wife (whose family seems to hate this guy at first) knows ppt and accounting and through pluck and luck and a number of bad rejections and false starts he creates a big building maintenance company. We also watched the film Two States. It’s about an MBA guy from Delhi and an MBA girl from Chennai who want to get married, but his Punjabi family can’t stand her Tamil Brahmin family and vice versa. They’re both intractable, and most of the film is about how to create enough peace so that there can be a wedding. At the end, enough problems are resolved so that an extraordinarily elaborate wedding takes place, and the flash forward at the end is about playing with the beautiful babies. (There were other entertainments that covered similar ground to these two productions.)

What struck us is that the TV show and the movie were, among other things, sermons; that’s a little strong but you catch the drift. The point of the Hong Kong story is that: life’s tough, and if you want to succeed, suck it up and keep trying. Indeed, at one point, the young wife, after yet another setback for hubby, actually says in English “Tomorrow is Another Day.” Hard to miss the point of that! The happy ending involves riches and a fabulous home and grounds. As for the Indian movie, well forget Murphy Brown — these guys refuse to even elope. The family issues absolutely have to be ironed out and there will be no wedding until that happens, and the notion that there might be kids on the side simply does not exist.

In contemporary America, would we be likely to often see a Horatio Alger story without a Hollywood sneer at an ending such as this one has? And as for the Indian movie, first click the Murphy Brown link above and let’s talk. 40-80% illegitimacy rates are insane because they lead to gangs, youth crime and violence for the boys and different but comparable disasters for the girls. But if you’ve watched CNN lately, it’s unlikely you’ve seen these important issues discussed. Much safer for one and all to wallow in the fetid swamps of victimhood than deal with the profound problem which is driving a stake into the heart of both personal and political self-governance.

It’s easy to imagine plentiful American versions of the Hong Kong and Indian shows in US theaters as well as prime time radio and TV 50-75 years ago. Are they still around much today? There’s more than one reason for that of course, and they doesn’t bode well for the future.

Been there, done that

Thursday, December 4th, 2014

Marketwatch (slightly edited):

It’s official: America is now No. 2…China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A. As recently as 2000, we produced nearly three times as much as the Chinese. To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in terms of purchasing-power parity (PPP)

PPP? Where have we seen that before? Ah yes, we considered it at length a decade ago. (China has grown spectacularly in the last decade of course, but PPP is a little exaggerated compared to other measures.)

PS: doesn’t the reporter seem kind of happy about the story and headline?

4% growth?

Monday, October 20th, 2014

Bloomberg:

China’s economic growth will slow to about 4 percent annually after 2020 following decades of rapid expansion, according to the Conference Board.

China faces a “deep structural slowdown and broad uncertainty” in the decade ahead, the New York-based research group said in the report yesterday. China’s development model, based on state direction of capital and growth-fixated monetary policy, generated “deep seated” risks and imbalances, it said.

“The course of China’s growth has always harbored the potential for deceleration at least as rapid as its acceleration,” David Hoffman, vice president of the Conference Board’s China Center for Economics and Business in Beijing and a co-author of the report, said in a press release. “We are beginning to see the signs of this transformation take hold.”

China’s government has signaled it will tolerate slower economic growth this year by refraining from broad stimulus. Weighed down by a property slump, China’s gross domestic product probably expanded 7.2 percent in the third quarter, the slowest in more than five years

We’ll have much more to say about this after we have studied the report in question. 4% seems too low. But you know, cooked books of the past may be catching up.

Deflation here and there

Thursday, September 11th, 2014

Reuters:

China’s consumer inflation cooled more than expected in August, further evidence that the economy is losing momentum. Weak Chinese data had helped support markets on the bet that authorities would unleash new stimulus measures, but investors are becoming increasingly worried, said Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt. “There’s no commitment yet from China to stimulate the economy in the short term,” he said. “Copper is the leading metal so it’s not surprising to see it coming under massive pressure with this overwhelming pessimism right now in the market.”

Three-month copper on the LME dropped to its weakest since June 20 at $6,770 a tonne before paring losses to close at $6,835 a tonne, down 0.5 percent. Adding to pressure on copper, the global refined copper market was seen flipping into a surplus. “The expectation of a surplus was postponed by a couple of different factors … but we still expect you’re probably going to see that by the end of the year,” analyst James Glenn of National Australia Bank in Melbourne said.

Aluminium was vulnerable to more losses, said Paul Adkins of consultancy AZ China in Beijing. “We feel the aluminium price is a little bit overbought at the moment. And we don’t see enough support from the fundamentals,” he told the Reuters Global Base Metals Forum. “All those restarted (Chinese) smelters are now starting to bring metal to the market and there is still 1 million tonnes of new capacity set to enter the picture through the rest of this year.” Commerzbank’s Weinberg said the metal was a candidate for a short position with a target of $1,900 a tonne by year end.

Deflation and devaluations also observed in language.

China’s productivity growth slows

Tuesday, September 2nd, 2014

WSJ:

“China is now at this critical juncture, and maybe has been for several years,” writes Harry X. Wu, a senior advisor to The Conference Board’s China Center and an economics professor at Japan’s Hitotsubashi University. “This explains the ongoing ‘soft fall’ slowdown in economic growth despite the government’s continued stimulus exercises and continuing high-levels of investment and supporting credit expansion.”

Mr. Wu argues in a Conference Board paper that China’s economic ascent may have been less miraculous than it appeared, with total factor productivity – a measure of an economy’s technological dynamism – badly lagging other Asian high-growth economies at a similar stage in their development.

China’s 1% average annual growth in total factor productivity between 1978 and 2012 – a period when average per capita annual incomes rose from $2,000 to $8,000 — compares with 4% annual gains for Japan during its comparable 1950-1970 high-growth period, 3% for Taiwan from 1966-1990 and 2% for South Korea from 1966-1990, he said, when purchasing power in the relative economies is taken into account.

“Our study shows that China’s spectacular growth in the reform period has been mainly investment-driven and quite inefficient,” Mr. Wu wrote.

A big problem, which often complicates efforts to assess the health of China’s economy, is the reliability of Chinese data. Using three measures of productivity, J.P. Morgan economist Haibin Zhu concludes in a research note that China’s total factor productivity grew 1.1% in 2013 from a 3.2% expansion in 2008. Mr. Wu draws on different methodology to argue that total factor productivity turned negative from 2007 to 2012.

China’s cooked books have been a problem for many years. Without explosive growth to cover up the issue, it’s going to be an interesting time shortly.

China’s restructuring challenges

Saturday, August 9th, 2014

Stratfor:

Chinese President Xi Jinping’s anti-corruption campaign is the broadest and deepest effort to purge, reorganize and rectify the Communist Party leadership since the death of Mao Zedong in 1976 and the rise of Deng Xiaoping two years later. It has already probed more than 182,000 officials…

China is in the midst of an economic transformation that is in many ways unprecedented. The core of this transformation is the shift from a growth model heavily reliant on low-cost, low value-added exports and state-led investment into construction to one grounded in a much greater dependence on high value-added industries, services and above all, domestic consumption. China is not the first country to attempt this. Others, including the United States, achieved it long ago. But China has unique constraints: its size, its political system and imperatives, and its profound regional geographic and social and economic imbalances. These constraints are exacerbated by a final and perhaps greatest limit: time. China is attempting to make this transition, one which took smaller and more geographically, socially and politically cohesive countries many decades to achieve, in less than 20 years.

The bulk of this work will take place over the next 10 years at most, and more likely sooner, not because the Xi administration wants it to, but because it must. The global financial crisis in 2007-08 brought China’s decadeslong export boom cycle to a premature close. For the past six years, the Chinese government has kept the economy on life support in the form of massively expanded credit creation, government-directed investment into urban and transport infrastructure development and, most important, real estate construction. In the process, local governments, banks and businesses across China have amassed extraordinary levels of debt. Outstanding credit in China is now equivalent to 251 percent of the country’s gross domestic product, up from 147 percent in 2008. Local governments alone owe more than $3 trillion. It is unknown — deliberately so, most likely — what portion of outstanding debts are nonperforming, but it is likely far higher than the official rate of 1 percent.

Despite claims that China’s investment drive was and is irresponsible — and certainly there are myriad anecdotal cases of gross misallocation of capital — it nonetheless fulfills the essential role of jumpstarting the country’s effort to “rebalance” to a new, more urban and more consumption-based economic model. But the problem, again, is time. China’s real estate sector is slowing. Sales, home prices and market sentiment are falling, even in the face of continued expansion of the overall credit supply. The days of high growth in the housing construction sector are numbered and prices, along with overall activity, are on a downward trend — one that can and will be hedged by continued high levels of investment and credit expansion, but not one that can be stopped for long. Real estate and related construction activity will remain the crucial component of China’s economy for the foreseeable future, but they will no longer be the national economic growth engines they were between 2009 and 2011.

This means that in the next few years, China faces inexorable and potentially very rapid decline in the two sectors that have underpinned economic growth and social and political stability for the past two or more decades: exports and construction. And it does so in an environment of rapidly mounting local government and corporate debt, rising wages and input costs, rising cost of capital and falling return on investment (exacerbated by new environmental controls and efforts to combat corruption) and more. Add to these a surge in the number of workers entering the workforce and beginning to build careers between the late 2010s and early 2020s, the last of China’s great population boom generations, and the contours emerge of an economic correction and employment crisis on a scale not seen in China since Deng came to power.

The solution, it would seem, lies in the Chinese urban consumer class. But here, once more, time is China’s enemy. Chinese household consumption is extraordinarily weak. In 2013, it was equivalent to only 34 percent of gross domestic product, compared to 69-70 percent in the United States, 61 percent in Japan, 57 percent in Germany and 52 percent in South Korea. In fact, it has fallen by two percentage points since 2011, possibly on the back of the anti-corruption campaign, which has curbed spending by officials that appears to have been erroneously counted as private consumption. There is reason to believe that household consumption is somewhat stronger than the statistics let on, but it is not nearly strong enough to pick up the slack from China’s depressed export sector and depressive construction industries. China’s low rates of urbanization relative to advanced industrial economies underscore this fundamental incapacity.

Whatever the Chinese government’s stated reform goals, it is very difficult to see how economic rebalancing toward a consumption- and services-based economy succeeds within the decade. It is very difficult to see how exports recover. And it is very difficult, but slightly less so, to see how the government maintains stable growth through continued investment into housing and infrastructure construction, especially as the real estate market inevitably cools. This leaves us with a central government that either accepts economic recession or persists in keeping the economy alive for the sake of providing jobs but at risk of peril to its reform initiatives, banks and local governments. The latter is ugly and very likely untenable under the current political model, which for three decades has staked its claim to legitimacy in the promise of stable employment, growth and rising material prosperity. The former is absolutely untenable under the current political model.

The pressures stemming from China’s economy — and emanating upward through Chinese society and politics — will remain paramount over the next 5-10 years. The above has described only a very small selection of the internal social and economic constraints facing China’s government today. It completely neglects public anger over pollution, the myriad economic and industrial constraints posed by both pollution and pervasive low-level corruption, the impact of changes in Chinese labor flows and dynamics, rising education levels and much more. It completely neglects the ambivalence with which many ordinary Chinese regard the Communist Party government.

CNN: Chinese President Xi Jinping has vowed to clean up the tarnished image of the Communist Party, pushing anti-graft campaigns and pledging to target “mosquitoes” — minor officials — as well as “tigers” — top officials…A report by the Ministry of Commerce cited in the English-language China Daily showed 4,000 corrupt officials had fled the country with at least $50 billion between 1978 and 2003.

2003? Just imagine how many expats and how many billions have fled since then. There is structural unrest in China as it seeks to make a very difficult transition. If push comes to shove, how do you quickly create unity and patriotic spirit? How do you spell Crimea in Chinese?

That mysterious bond market rally explained

Thursday, July 17th, 2014

WSJ:

Investors wrestling with the mysterious U.S. bond rally of 2014 got a clue about where to look: China…The yield on the 10-year U.S. Treasury note has fallen to 2.54%, from 3% at the end of 2013…

The Chinese government boosted its official holdings of Treasury debt maturing in more than a year by $107.21 billion in the first five months of 2014…Japan, the second-largest foreign owner of Treasury bonds, increased its note and bondholdings by $9.56 billion… the Treasury report isn’t a complete picture because it doesn’t account for China’s holdings at third-party custody institutions in other nations, such as the U.K. and Belgium…

China’s foreign-exchange reserves currently approach $4 trillion, the world’s biggest in size. China doesn’t disclose the composition of the reserves, but analysts say most are denominated in U.S. dollars…

“The big picture is that China buying may be helping to keep bond yields lower than they should be ahead of the Fed moving closer to raising rates,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. “The market could wake up and get quite a shock…if China changes course.” The risk for the U.S. economy, said Mr. Rupkey, is that any slowdown in Chinese purchases could push U.S. bond and mortgage rates higher, which would put “the fragile housing recovery in jeopardy.”

There’s an economic reason for China to be doing this of course. But you do have to wonder if it’s part of another strategy as well. We’ve seen China jab and retreat in Vietnam, and then there’s Japan. Wheels within wheels is our guess.

China’s growth rate reconsidered again

Wednesday, June 18th, 2014

WSJ:

Nearly every story about China’s extraordinary growth over the past 30 years asserts two things as a given: a). China has grown about 10% a year for 30 years and b). China’s long-term growth record in unsurpassed in modern history. A new report by the Conference Board says both of those assertions may be untrue. According to the report, written by economist Harry X. Wu, a senior advisor to the New York-based business research group, China’s economy grew at 7.2% a year between 1978 and 2012 — a rate far lower than what Beijing claims and nowhere near 10%…

What sets apart the Conference Board report is the length of time that Mr. Wu examines, which spans a number of rough economic patches for China. A great deal of the difference between the Conference Board data and official data reflects the years when China hit rough spots. In 2008, the year the U.S. financial crisis spread globally, Mr. Wu calculates that China’s economy grew 4.7% compared to China’s reported 9.6%. In 2012, when Europe was battered by recession, he estimates China’s GDP increased just 4.1%, compared to China’s reported 7.7%. The Chinese overestimates, he says, greatly affected the 30-year growth numbers. China’s statistics bureau didn’t respond to requests for comment.

Mr. Wu argues that China’s numbers especially diverged from reality after the country joined the World Trade Organization in 2001. That was a period, he says, in which “significant overcapacity was built in state-dominated and influence industries,” and localities competed fiercely to be top GDP dog and attract investment…

Mr. Wu argues that China overstates productivity growth and underestimates inflation, which tends to make inflation-adjusted GDP numbers –- the ones that get highlighted every quarter — higher than they otherwise would be. He also suggests that politics plays a big role, particularly the desire of local officials to exceed GDP targets, which have long been an important way to boost official promotion chances

No doubt the growth rate in China’s GDP has been impressive, no matter what the actual numbers are. However, always take note of the problems with PPP and bad loans, perhaps especially in the shadow banking system. Stay tuned.

Well, what did you expect?

Wednesday, May 14th, 2014

WaPo editorial:

With a $1 billion oil rig the size of a football field, China has literally laid down a new marker in its ambition to dominate the South China Sea — and challenged President Obama’s “rebalancing” policy in Asia, only weeks after the president’s tour of the region. The rig is about 130 miles off the coast of Vietnam, in waters that Vietnam claims as an exclusive economic zone under international law. China’s claim is more tenuous, but it is backed up with a flotilla of some 80 ships that for a week have engaged in a dangerous contest of ramming and water-hosing Vietnamese vessels.

The message of the deployment is as simple as it is provocative: The regime of Xi Jinping intends to unilaterally assert China’s sovereignty over almost all of the South China Sea without regard for the competing claims of five other countries or Mr. Obama’s newly restated commitment to uphold defense agreements with two of those nations. In that sense, the rig, like Russia’s invasion of Ukraine, is a fundamental challenge to the international order the United States has tried to preserve since the end of the Cold War.

China’s ambitions are described by an audacious map, dating from the pre-Communist era, that claims some 80 percent of the South China Sea and a number of island chains or waters also claimed by Japan, the Philippines, Taiwan, Brunei and Indonesia, in addition to Vietnam. For years Beijing has talked with those countries and others in Southeast Asia about establishing a code of conduct for the sea, and it discussed the possibility of joint development of oil and gas with Vietnam a few months ago.

The move of the oil rig appears to reflect a calculation that a more aggressive policy will not meet meaningful resistance from China’s neighbors or the United States.

Wretchard: “The West is transfixed, stunned by its own toxic cocktail of lies. That we will wake up is inevitable. The danger is that if we remain asleep too long, the world may already be burning by the time we look out the window.” For most of two generations, the universities have been obsessed with creating a strange alternative narrative of the US and western history. They teach rubbish and worse. With some exceptions, only the geezers know the real story, and they are now mostly shouted down and persecuted by know-nothings.

Cancelled, with malice aforethought

Tuesday, May 13th, 2014

We seem to be in an era of hating the past and hyping the future, a recipe for disaster. Huh? — “those who opposed Lagarde said they were attacking the IMF for being ‘a corrupt system’ that fuels the oppression and abuse of woman worldwide.” Funny/sad comments here. Finally, Ruth Wisse speaks for the geezers, the only Americans who seem not to have lost their minds. The young and their mentors in the faculty lounge have created disaster — the question of whether it will be the disaster of the 1930’s or 1970’s is still open…

Reality bites

Friday, May 2nd, 2014

Bonior. And Dude! We have referred to the faculty lounge, but it’s more like the way college freshmen used to be. Read Steyn to get really depressed.

The gums of August

Wednesday, April 30th, 2014

You know there’s a serious situation when not only VDH and Wretchard are alarmed at the feckless or non-existent US foreign policy, but so is the head of the CFR. In part we suppose this was to be expected, since the faculty lounge is all about words and not deeds; thus you get a red line here and an apartheid there and no matter. And it’s not just the senior faculty. The TA’s are writing both the blah-blah and the cover-up memos, and truth be told, they don’t know very much. So we’ve wound up in an easily foreseen terrible place, and in the next couple of years we will learn what China and Russia would do in a world unfettered by the presence of the USA.

Leave the gun, take the hashtag

Sunday, April 27th, 2014

It is inconceivable that a picture such as this (and the caption) would come from the US State Department until these serious/trivial times, and we’re not talking about the technology of it all. Some appropriate mocking commentary is to be found here. Tick, tick, tick. Oh, yes, in these times the bizarre and gaudy take center stage until the more bizarre and gaudy thing comes along.

Final point: nice piece by Conrad Black on Steyn/Mann.

Ambiguity, how nice!

Saturday, April 26th, 2014

AEI:

“we don’t take a position on final sovereignty determinations with respect to Senkakus.” This has been longstanding US policy…it does introduce a bit of ambiguity into the security guarantee.

Indeed it does with 3 countries claiming ownership. You’d think that this might be a good occasion to duck questions and refer them to the State Department for repetition of policies of long standing. Ah, well. (They’re all playing us, because they know how easy and how much fun it is — wait ’til they get to something really serious.)