The dissipation of the Pax Americana

Reuters, in The Guardian:

China will build a second, larger aircraft carrier capable of carrying more fighter jets, the official Xinhua news service has reported, quoting a senior officer with the People’s Liberation Army (PLA) Navy.
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China is also building up other forms of military hardware, including a stealth fighter jet believed to be capable of landing on a carrier, drone aircraft and nuclear submarines.

China is alone among the original nuclear weapons states to be expanding its nuclear forces, according to a report by the US-China Economic and Security Review Commission.

Japan will respond, I suspect, by amending its peace constitution to repeal Article 9 which is the basis for restricting its spending on military to 1% of GDP.

Japan is also, in my opinion, engaging in a trade war with China by devaluing the yen. Of course, China may be engaging in proxy war using North Korea. Both sides are unwise to escalate tensions. They would do better to work to ensure adequate petroleum supplies to the region and not worry so much about which economy gets the proceeds.

An excellent review of what drives economic growth

Michael Pettis has a fascinating post titled “A brief history of the Chinese growth model.” But where China has succeeded, it has been by copying the early American growth model (including, one might add to Pettis’s piece, generous use of slavery or near-slavery).

If you want to know why we became a rich nation and have subsequently faltered, this article is a great place to start. I would argue that as to the latter, we have both failed to protect our infant industries but, more important, have failed to get capital to them in an effective fashion. Our venture capital system provides capital, but at extortionate rates. There is tremendous dishonesty and even corruption in start-ups. Government funding is limited, wasting entrepreneurial time on writing lots of small applications, often ends up going to big corporations rather than start-up companies, and is sometimes wasted in ways that should involve consequences to the entrepreneurs that lie. Our banking system is completely ineffectual for start-ups.

South Korean dictator’s daughter becomes president

Justin McCurry, The Guardian:

Park Geun-hye, whose father ruled South Korea with an iron fist for 18 years, became the country’s first female president on Wednesday….

Moon, a leftwing former human rights lawyer from the Democratic United party, conceded defeat and congratulated Park on her victory.

Park, 60, had to overcome resentment towards her privileged background and accusations that her Saenuri party was too close to the powerful chaebol conglomerates that dominate the South Korean economy.

OK: An expansionist China, an ultranationalist government in Japan, a dictator’s daughter in control of South Korea, and North Korea firing missiles.

Anyone see a pattern here?

Irresistible force meets immovable object (China vs. Japan/US in Senkaku/Diaoyu dispute)

China violates airspace, claims Japan is intruding.

Japan tipped to elect bellicose PM.

What could go wrong?

China in a bull shop

Once again on my China-is-not-a-benign-continental-power rant….from Jonathan Kaiman, The Guardian:

It took just one little map to create a regional diplomatic dispute.

The map, in China’s newly designed passport, claims ownership of the entire South China Sea – parts of which are also claimed by Taiwan, the Philippines, Vietnam, Brunei and Malaysia – as well as disputed areas on the China-India border and two Taiwanese tourist destinations.

The Philippines, Vietnam, India and Taiwan have all vehemently protested against the new microchip-equipped passport, which essentially forces neighbouring countries to validate China’s position on contested regions.

Vietnam and the Philippines lodged formal complaints last week with Chinese embassies in Hanoi and Manila, respectively. India’s external affairs minister, Salman Khursid, called the map “unacceptable”.

It’s as if the US did a map with the Jamaica, Iraq, and, oh, say, France as US territories. Would not make the locals happy. And would suggest that the US is even more arrogant than it actually is.

None of this would be of much moment if the US were stable or if the nations of the South China Sea had developed to the point of being capable of mutual self-defense. But China is behaving recklessly. Evidently the lessons of the generation that suffered in war to achieve national independence have been lost, and a narcissistic generation, grasping for power, has emerged. We should know. We have been there before.

Sparring over Senkaku

For some time, I have been concerned about the strengthening of the Chinese navy. In 2009, there was a clash between the USS Impeccable and Chinese vessels. In 2010, there was an incident between the Chinese and Japan.

Now there is rising tension over the Senkaku (Chinese: Diaoyutai) Islands. Probably because of domestic factors, Japan has chosen to emphasize its claims to ownership of the islands and China, for its own domestic reasons, has chosen to respond with rhetoric so intense that some Japanese manufacturers in China have been forced to shut down. The islands are not inhabited, and are roughly 150 miles off of Taiwan and 230 miles off of China. However, thanks to the 200 mile exclusion zone granted by international law to territorial waters, whoever controls the islands, controls something like 25,000 square miles of seabed which might constitute a new Saudi Arabia. If there is a conflict, the US is bound by treaty to support Japan.

None of this would be an issue if China had not developed a blue water navy. But it has, and the purpose of that navy is probably, according to the Congressional Research Service, to fend off any attempt to rescue Taiwan from a Chinese invasion. Today, on CCTV, their first aircraft carrier, the Liaoning, was pointedly on display.

China has had a series of clashes with its neighbors, including Vietnam, the Philippines, and Japan. India regards it as its primary rival. China, of course, seized a US aircraft during the Dubya Administration.

This is a dangerous situation and, I fear, part of a China that has gone from confident to arrogant, and prone to misjudgment. Whether the present kerfuffle over the Senkaku Islands will end in bloodshed is unknowable. My guess is, probably not. But as American power comes under increasing strain (thanks to our criminally incompetent military leadership), the emergence of an aggressive China is likely. Economically, the effect of open conflict could be as serious as war against Iran. Perhaps worse.

And the American media continue pouring out infotainment, and the American public remains oblivious.

Added: This column by Han Yi-Shaw presenting the Chinese point of view is useful, as are many of the comments. Personally, I think that the resources below the Economic Zone should be donated to the Palestinians and other people living under stateless conditions. Then the Chinese and Japanese can probably find an amicable resolution as to who owns the islands.

More fun in Euroland

Hungarian and Egyptian yields spike, Chinese land prices slump.

More joy as it arrives in my mail box.
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Update: Ah, well, US jobs increase, so all is well, say the European markets. Even Asia is not so bad: Japan down, China up.

But there’s a fair amount of negative news in Europe, even though the US news is good.

Chiang Kai Shek, the C.I.A., and drug running; also, a fascinating sidelight about Patton

I finally found a site that reviews the history of how the US got into the business of running drugs: The Takao Club.

Now, it’s important to understand that the US was not the first. The British beat us into the state-driven drug trade by a couple of centuries in the Opium Wars. But drug running has become a central part of US military action. The roots of US involvement are in World War II. Alfred McCoy gives a comprehensive history of that involvement through the mid-70s. In the case of Luciano, drug running was incidental; Luciano was clearly a bad guy (McCoy adds the fascinating point that Patton’s sweep through Sicily was facilitated by the Mafia). In Southeast Asia, drug running became part of policy.

Here’s what the Takao Club says about the connection between the CIA and the opium trade; I’ve highlighted a sentence that I think is based on the political fear that still reigns Taiwan politics:

The rise to power of China’s Nationalist movement was closely linked with Shanghai’s eminence as an international drug capital….
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Chiang’s control of Shanghai was made possible with the aid of two main groups: the wealthy and the criminal. Wealthy merchants and foreign capitalists supported the KMT with the understanding that there would be no reforms that threatened their interests. The Shanghai criminal organizations were dominated by two secret society groups called the Green Gang and the Red Gang.
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Tu and the Green Gang solved the problem for Chiang Kai-shek. On April 12, 1927, the gangsters initiated a vicious crackdown on the local Communist party organizers and labour activists. During the subsequent ‘reign of terror’, the city’s Communist party and labour movement was destroyed. This pact with the Kuomintang strengthened the Green Gang’s grip on official power, so that Tu was given a seemingly free hand to operate throughout Nationalist China.
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By mid-July 1935, Chiang had turned most of the opium enterprises over to his ally, Tu Yueh-sheng. The Kuomintang jurisdiction in 1935 did not lead to opium suppression but brought instead stricter regulation of cultivation and sale…
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Following World War II, the Green Gang fell under the control of a Nationalist army lieutenant general, Kot Siu-wong.
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With CIA support, the Kuomintang remained in Burma until 1961, when a Burmese army offensive drove them into Laos and Thailand. By this time, however, the Kuomintang had expanded Shan State opium production by almost 1,000 percent-from less than 40 tons after World War 11 to an estimated three hundred to four hundred tons by 1962.

Shan heroin refinery in Thailand

From bases in northern Thailand the Kuomintang continued to send huge mule caravans into the Shan States to bring out the opium harvest. Until 1971, over twenty years after the CIA first began supporting Kuomintang troops in the Golden Triangle region, these Kuomintang caravans controlled almost a third of the world’s total illicit opium supply and a growing share of Southeast Asia’s thriving heroin business.

The Hong Kong-based ’14K’ triad, with its strong links to the old Shanghai Green Gang and Nationalist officers, was able to link the Kuomintang-controlled highlands of the Golden Triangle to the distribution channels of the USA and Europe.

Whether the Kuomintang in Taiwan had any connection with this trade remains an open question. However, it can be assumed that Taipei had little incentive to risk the American aid that flowed in after the Korean War, and the American supply contracts that flooded in during the Vietnam War, launching Taiwan on its ‘economic miracle’.

In the early 1990s, Taiwan came to notice as a transit point for Asian drug trafficking organizations moving heroin to the Western Hemisphere. The largest heroin seizure on record is the nearly half-ton of heroin that U.S. authorities discovered in Hayward, California in 1991. The drugs, which originated in China, had transited Taiwan en route to the United States.

(Also consult The Soong Dynasty by Sterling Seagrave)

Now, I don’t think it’s an open question as to what the relationship between the KMT on Taiwan and the narcotics trade was. Alfred McCoy, in The Politics of Heroin in Southeast Asia wrote:

In 1950 the Defense Department extended military aid to the French in Indochina. In that same year, the CIA began regrouping those remnants of the defeated Kuomintang army in the Burmese Shan States for a projected invasion of southern China. Although the KMT army was to fail in its military operations, it succeeded in monopolizing and expanding the Shan States’ opium trade.

The KMT shipped bountiful harvests to northern Thailand, where they were sold to General Phao Sriyanonda of the Thai police, a CIA client. The CIA had promoted the Phao-KMT partnership in order to provide a secure rear area for the KMT, but this alliance soon became a critical factor in the growth of Southeast Asia’s narcotics traffic.

With CIA support, the KMT remained in Burma until 1961, when a Burmese army offensive drove them into Laos and Thailand. By this time, however, the Kuomintang had already used their control over the tribal populations to expand Shan State opium production by almost 1,000 percent-from less than 40 tons after World War 11 to an estimated three hundred to four hundred tons by 1962. (130) From bases in northern Thailand the KMT have continued to send huge mule caravans into the Shan States to bring out the opium harvest. Today, over twenty years after the CIA first began supporting KMT troops in the Golden Triangle region, these KMT caravans control almost a third of the world’s total illicit opium supply and have a growing share of Southeast Asia’s thriving heroin business. (131)
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At first glance the history of the KMT’s involvement in the Burmese opium trade seems to be just another case of a CIA client taking advantage of the agency’s political protection to enrich itself from the narcotics trade. But upon closer examination, the CIA appears to be much more seriously compromised in this affair.

What is particularly notable is the destination of the products of the opium that the KMT was producing: the streets of America. The addiction of Americans was financing secret wars being conducted by the CIA.

If you want to understand why Burma–a US ally during WW II–has been so hostile to the US, you cannot understand without understanding this history. If you want to understand why Italy is so ungovernable, this history is an important source to visit. If you want to understand the violence in Latin America, look into this history. All through the world history of the last 60 years, this secret drug empire lurks as a primary cause of America’s defeats.

And this returns us to why the Gary Webb story is so important. Today, December 9th, is the seventh anniversary of his death.

The Eurozone rescue explained

Tom Meltzer of The Guardian has the full explanation in simple terms.

http://www.xtranormal.com/xtraplayr/12611732/the-european-bailout-explained

China and India jockey for power in South China sea

China and Vietnam are regional rivals, and Vietnamese take considerable pride in having resisted Chinese invasion attempts. Vietnam is, of course, by far the weaker of the two.

The South China Sea, with its oil and gas, is a point of regional tensions. China wants to claim it all. Vietnam is having none of that. The Chinese are taking the better part of valor, and offering to cooperate with Vietnam in developing the oil fields. Vietnam, smart enough not to rely on China completely, has brought China’s primary rival India into the equation.

Oil is not all that is at stake. As Prokhor Tebin says in ATimes:

Sea-trade is foundation of global economy: 90% of world’s commerce travels by sea. It [the South China Sea] is the second most used sea lane in the world – over 50% of the annual merchant fleet tonnage passes through the Strait of Malacca, the Sunda Strait, and the Lombok Strait. The Strait of Malacca accounts for nearly 10 millions barrels of crude oil every day. There are enormous mineral and fishing resources, and the South China Sea is estimated to hold about 7 billion barrels of oil and 900 trillion cubic feet of natural gas.

This area, contested by “China, Vietnam, Philippines, Taiwan, Malaysia and Brunei” is a flashpoint on par with the Middle East.