China is doing what it can to ensure that the socialist Nicolas Maduro government of Venezuela survives so that it can repay the $50 billion China has loaned Venezuela and allow China to upgrade and maintain the local oil production facilities. Venezuela will pay China to do that and the current Maduro government will do so gladly because no one else is willing to do it. Yet China is not saying much and keeping its options open. For the moment is depending on Cuba and Russia to keep the very unpopular and corrupt president Nicolas Maduro in power. At the same time China appears to be distancing itself from the Russian and Cuban machinations and concentrating on rehabilitating the decrepit and declining Venezuelan oil production capability. If Cuba and Russia can keep the current government in power (with or without the corrupt and incompetent Maduro) China will have supplied the oil production to pay for it. But only if Cuba and Russia can manage to get the growing number of sanctions placed on Venezuela lifted. Unlike Cuba and Russia China has developed good relations (via recent large investments) with most South American nations. That will help China survive any catastrophe that the Cubans and Russians might create as they seek to prop up the Maduro dictatorship.
The corruption and incompetence of Maduro has turned the Venezuelan oil industry from one of the best run in the world to one of the worst. It took about fifteen years to do this and China will require years of effort and billions in expenses to repair all the damage. China is in touch with the opposition but is still visibly supporting Maduro. That is a problem because the Maduro government has been condemned by most Western Hemisphere states and many others worldwide for rigging elections and refusing to allow food and medical aid in. Maduro insists foreign aid is not needed and that elections over the last few years were fair. Maduro does not believe there is any kind of crisis other that what problems there are were created by foreign intrigue. So far ten percent of the population has fled the country because of the economic collapse and shortages of food, medicine and much else. China, like many other nations, are waiting to see if the Venezuelan security forces (army and police) remain loyal in the face of family, friends and neighbors of most soldiers and police suffering from the shortages and violence. Neighboring countries are openly trying to persuade the Venezuelan military to turn against Maduro, if only because Maduro continues to block foreign aid for the economic and human catastrophe his misrule has created. That is sending a growing number of Venezuelans across the border into neighboring states that do not want the burden of all these refugees.
China is willing to deal with the rival president of Venezuela, the widely accepted Juan Guaido who, technically is the interim president until fair elections can be held. Even Russia and China agree the political and economic situation in Venezuela is a mess but both want to protect their investments (loans and business agreements) and avoid any unfavorable fallout. China is in touch with Guaido while Russia is letting China take the lead with economic reconstruction. China is allowing senior Maduro officials to send family members to China, which may indicate a willingness to provide comfortable exiles for these wealthy families. The only catch is their wealth is the result of massive corruption by Maduro cronies and Maduro himself. The cash is often stashed in Western banks, which are seen as more reliable (even though they will respond to court orders). Putting dirty money in Chinese banks puts y0u at the mercy of a government that is not answerable to courts or any international rules. At the same time the Americans are imposing more and more economic sanctions on Venezuela and that hurts because the United States has long been the main market for Venezuelan “dirty” (tarlike and full of troublesome chemicals) crude oil that requires expensive treatment to ship and refine. China realizes the Venezuela is a dangerous situation but because of the large Chinese investments there are opportunities as well as risks.
South China Sea
China has casually created another crisis over who controls Pagasa Island and nearby sandbars. The Chinese have put a record number of ships around the island, most of them Chinese fishing boats pretending to be fishing but in reality members of the Chinese naval militia which is being used in unprecedented numbers here. China insists it has not ordered its naval militia fishing boats to physically block Filipino commercial or military ship from getting to Pagasa. But it has become more difficult for Filipino fishing boats to operate in areas they had long worked. China has been threatening to cut off access to Pagasa since 2014 but has never followed through, possibly because the Philippines has often stationed a warship off Pagasa. China claims ownership, despite Pagasa being closer to the Philippines than China and long occupied by Filipinos. Also called Thitu Island, Pagasa is the second-largest (37.2 hectares/93 acres) of the Spratly Islands and is inhabited by 200 Filipinos civilians and a few military personnel. Filipinos have lived on the island since 1956 and there have been a Filipino military presence there since 1970.
China has been increasingly belligerent about its claims to Pagasa and threatens to “take it back” by force. After 2014 Chinese military and civilian ships were showing up near Pagasa with increasing frequency and sometimes the Chinese vessels tried (by getting in the way) to prevent non-Chinese vessels from getting too close to the island. The Philippines often has a coast guard boat off the island (which is 480 kilometers from the nearest Filipino territory China does not claim) and that provides the possibility of a violent military encounter. On days that supplies are being delivered to Pagasa China often has more than 80 ships in the area. The Filipino coast guard has a lot of other areas to watch and cannot really afford to maintain a major presence off Pagasa and the Chinese know it.
Many Chinese fishing ships are part of an unofficial but organized and paid naval militia. The Chinese maintain this force with subsidies (for building new fishing boats) and assurances that the navy will assist Chinese fishermen in gaining access to foreign fishing areas and exclusive use of fishing grounds in international waters. The fishing boats are the most numerous and aggressive component of this militia. Overall the militia appears to consist of several hundred fishing and coastal cargo vessels. There are a hundred or so larger civilian ships, mostly ocean going fishing trawlers, as well. The naval militia openly functions as a government supported organization and has headquarters in southern China. Any foreign criticism of the Chinese naval militia elicits only denials from the Chinese government.
President Duterte of the Philippines responded to the current crisis by dropping his “China wants to be a friend” approach and warned China that any move to occupy Pagasa or any other disputed South China Sea island where Filipino live or work would result in a military response from the Philippines. Duterte admits that this would be suicidal for the Filipino forces involved but it would trigger the mutual defense treaty with the United States. Short of that China was warned that their ships surrounding Pagasa Island are there illegally. Duterte has always admitted that the Philippines itself has not got the military resources to oppose Chinese aggression with any degree of success. Filipino legislators are complaining that their government seems unable to do anything about the Chinese threat. Filipino and American diplomatic officials are still trying to decide what constitutes an “attack” that would trigger the mutual defense treaty. China is well aware of that and as is their custom the Chinese are avoiding any direct violence. This is a potentially dangerous game but so far the Chinese have been successful at it. Until the Americans agree that the Chinese aggression has triggered the mutual defense treaty the Philippines has no option other than trying to be friendly with China while documenting the growing acts of Chinese aggression in the South China Sea.
The Perils of Pakistan
China has a perilous relationship with Pakistan and the Islamic terrorists Pakistan has on its payroll. Pakistan has persuaded China that, using the right incentives, Pakistan can control and manipulate their local Islamic zealots. That proved more difficult than anticipated and while the 2014 campaign against the local Islamic terrorists (the extremists among the Islamic conservatives the Saudis created in the 1980s) reduced the number of Pakistani Islamic terrorists seeking to replace the current government (a democracy dominated by the military) with a religious dictatorship, those zealots have become a permanent part of Pakistani society.
This Pakistani use of Islamic terrorists has caused problems with neighbors like Iran (Pakistani zealots kill Pakistani Shia), China (Pakistani zealots attack Chinese investments and the Chinese running them) and India (Pakistani zealots seek to terrorize India and seize control of Kashmir and eventually all of India). These neighbors have become increasingly forceful in their demands that the Pakistani government do something about this. Pakistan placates the Iranians by refusing to provide military assistance to the Arabs in Yemen, or against any Iranian military operation directed at the Gulf Arabs. Now Pakistan has to deal with increasingly angry Arabs who threatened to halt the cash infusions that the Pakistani economy increasingly depends on. The Chinese demand quick and effective action against Pakistan supported Islamic terrorists who threaten Chinese investments. This was one of the reasons for the 2014 campaign against many of the Islamic terror groups operating from Pakistani bases. Pakistan had hoped the Chinese would replace the Arabs as a source of cash support but the Chinese don’t operate that way. China makes investments and does not provide cash gifts like the Arabs and, until recently, the Americans. The United States has halted all cash support for Pakistan because the Pakistanis would not shut down Islamic terror groups that attacked American interests. Now the Pakistanis know that if the Chinese feel they are being played, like the Americans were, the Chinese will not be patient or forgiving. The Americans are no longer as accommodating as they used to be and the Iranians never were. India is a nuclear power with a larger army and economy than Pakistan. India is also losing patience and threatening war. Pakistan has to worry about too many past mistakes catching up with them at once. China has told Pakistan openly that China is not an ally or protector of Pakistan. China is a business partner and as long as business continues there will be a Chinese presence in Pakistan. The same rules are applied to everyone else. China does business with Iran and the Sunni Arab states Iran is at war with. Same with Russia and Ukraine. China will make some efforts to protect its investments but is reluctant to send in troops, or free money.
Now North Korea has to try and persuade China to help out because North Korea faces a major economic crisis that is largely self-inflicted. Essential investments in agriculture and infrastructure were halted for years to keep the nuclear and missile programs going and ensure that the few percent of the population that keeps everyone else under control was well taken care of. North Korea is running out of time, resources and options. Worse, China is also under economic pressure from the United States over decades of unfair trade practices and industrial espionage (stealing trade secrets and violating patents). The Chinese economy is also suffering self-inflicted problems because of corrupt practices that have now caught up with the officials behind them and the officials who tolerated it. Worst of all, China sees no advantage in helping North Korea become a nuclear power. For the moment China has joined the long list of nations that are pressuring North Korea to ditch the nukes and reform their economy. The Chinese feel North Korea has not shown sufficient respect and gratitude for all China has done for them. At the same China does not want the current Kim government replaced by a democracy or unification with South Korea. China does not want chaos in North Korea either, as that would send a lot of refugees into China. North Korea is a problem for China that has no easy or readily available solution.
The Dollar Divorce Dilemma
China and Russia want to establish the Chinese Yuan as an international currency that can challenge the dollar as the primary currency for international trade. Russia, China, Iran and anyone else interested have been seeking ways to establish a separate international payments system based on the Chinese currency (the yuan). Over the last few years this has produced a series of failed efforts to make it happen. Even Chinese bankers will explain (off the record) that this would not work because, compared the dollar, the yuan is much less stable and subject to wide and unexpected changes in value (compared to other currencies). One reason the dollar has become the primary currency for foreign trade is because it is the most widely accepted, used and, most importantly, stable of the major currencies. European countries opposed to the resumption of sanctions on Iran are trying to establish a barter system for Iran, to help get around the sanctions. The American see all these moves as fair game for U.S. countermeasures. Often no countermeasures are necessary. That was the case with an effort by Russia to establish Yuan denominated bonds, to be used for raising needed loans in Chinese financial markets. Several years of work have failed to make this happen. The reason is simple, Russia does not sell enough to China (that could be paid for in Yuan) to make it practical to eventually repay the bonds in Yean. That could be done but it would be more expensive, and riskier, than doing it in dollars. The dollar is not the pillar of strength it used to be but it is still be best international currency available.
Chinese operating commercial (rather than Chinese government) enterprises in northern Burma (Kachin and Shan states) are a major source of complaints in Burma. These seems to be no end of illegal schemes the Chinese come up with that profit at the expense of Burmese in the north. Two of the recent rackets is enticing or kidnapping Burmese women to China and selling them to Chinese men to be wives. There a growing shortage of Chinese women has created a market for young foreign women. China's "one child" policy of the last few decades, and the ability to determine the sex of the child before birth, led to more (20 percent more) boys than girls being born in China. There's a growing shortage of potential brides, and desperate Chinese men are willing to buy a kidnapped tribal girl from northern Burma (or anywhere else).
And then there are the Chinese banana plantations. Some are legitimate and registered in Burma to operate. But nearly all these Banana operations break the law in one way or another, usually by illegally expanding into state or locally owned forests and illegally using pesticides and fertilizer. For the northern tribes, China has rarely been a good neighbor and Burma is the current best example of the worst behavior by a larger neighbor.
The Military Threat
Chinese media portray the rapidly growing and modernizing Chinese military as a world class force. Much less publicized are the opinions and plans of the Chinese political and military leadership. This assessment is less optimistic. Currently the military is seen as improving but still crippled by corruption, lack of practical experience and serious personnel problems (not enough talented Chinese want to join). Senior officials accept this and their plan is for modernization to be completed by 2035 and for the military to train wisely and hard so that by 2050 China is one of, if not the primary military superpower. So far all is going according to plan, not the official propaganda.
April 2, 2019: The Philippines sent a diplomatic protest to China over the more than 200 Chinese vessels surrounding Pagasa Island in an effort to prevent Filipino fishing boats, of Filipino ships of any sort, from operating there.
March 30, 2019: Recently Chinese customs officials discovered a shipment of 30,000 world maps being exported by a Chinese printer to a foreign customer. The maps were seized and destroyed when it was discovered that the maps showed the northeastern Indian state of Arunachal Pradesh as part of India. China demands that all maps used or produced in China show Arunachal Pradesh as “Southern Tibet” and part of China. Same with Taiwan, which is also considered another prodigal province.
March 29, 2019: China flew in 65 tons of medical supplies to Venezuela. This was an effort to keep the current Venezuelan government in power. The 65 tons of medical supplies will not help the twenty million Venezuelans who are in desperate need of it (and much else, like clean water, food and power). But that 65 tons of medical supplies will ensure that the few percent of the population that keeps the socialist government in power has access to adequate medical care. The government can also offer medical supplies to key groups or areas that are becoming a threat.
March 28, 2019: The Philippines Navy reported that, so far this year, over 600 Chinese ships (mainly navy, coast guard or naval militia) have been spotted off Pagasa Island.
March 27, 2019: China is expanding the civilian population it has established in the Paracels. These islands had long belonged to (and been occupied) by Vietnamese. China took the Paracels by force in the 1970s. In 2012 one of the Paracel islands (Woody Island) was declared the center of Sansha, a new Chinese municipality (city). Sansha is actually Woody Island and dozens of smaller bits of land (some of them shoals that are under water all the time) in the Paracels and the Spratly Islands to the south. In fact, the new "city" lays claim to two million square kilometers of open sea (57 percent of the South China Sea). By establishing a large resident civilian population, even in an artificial social situation. After all the only economic enterprise on Sansha is working for the government. The people on Sansha are supplied by a fleet of specially built transports that constantly ferry back and forth from the mainland carrying water, food, fuel and other essentials. These transports are designed to operate in shallow waters and sometimes violent weather of the South China Sea. Artificial South China Sea communities like Sansha need constant resupply because there is not enough room to store large reserves of supplies. All this is expensive but seen as essential to eventually get international groups and legal tribunals to recognize Chinese claims over most of the South China Sea. At the moment Chinese claims have been declared by international tribunals as illegal. Changing that will take years, and a lot of cash but it can be done and China is doing it. China is also building up its military forces based in the South China Sea. This makes it more difficult for anyone to push them out by force and puts China in a position to exercise complete control over the area once it has received enough international approval for their illegal acquisition of this territory.
March 26, 2019: Japan established a military base on Miyako Island (between Sekaku Island and Okinawa). The Miyako and Sekaku islands are between Okinawa and Taiwan. Actually all three of these island systems dominate the seas between Japan and Taiwan and China has been making claims to some of these islands, especially the Senkakus and indicating that all of these Japanese islands are actually Chinese. The new garrison on Miyako Island has 380 troops and is being equipped with anti-aircraft and anti-ship missiles. Chinese naval ships have frequently entered Japanese territorial waters (within 22 kilometers of land) around the Senkaku islands and remained in Japanese waters for an hour or more. There have been over twenty of these incidents since 2017. Miyako Island is 210 kilometers from the Senkakus and Japan plans to put garrisons on more of these small islands.
March 25, 2019: Pakistan, responding to the United States over Indian accusations of using an American built F-16 to shoot down an Indian MiG-21 on February 27th, insisted it had used a Chinese designed JF-17. India presented evidence that American AMRAAM long range air-to-air missiles were used in bringing down the MiG-21. Indian radars and electronic intercepts also indicated what appeared to be F-16s rather than JF-17s in the area. The Americans are still checking out the evidence to determine what actually happened. At the moment the American manufacturer of the F-16 is trying to sell India over a hundred of the latest model F-16, which has been renamed the F-21.
March 24, 2019: China has provided Pakistan with an emergency $2.1 billion loan to help maintain foreign exchange levels. In January the UAE (United Arab Emirates) transferred $3 billion to help Pakistan deal with this financial crises. In late 2018 Saudi Arabia loaned Pakistan the same amount and also deferred another $3 billion worth of payments for oil. In addition China agreed to provide a $6 billion loan to Pakistan to help avert a crippling shortage of foreign exchange. Pakistan is resisting painful reforms and trying to get loans to put off the eventual reckoning.
March 23, 2019: Italy became the first major European nation to become part of the Chinese OBOR/BRI (belt and road project). For Italy this means $2.8 billion worth of Chinese investments in Italian ports and transportation infrastructure. China already has similar, but smaller BRI deals with Croatia, Czech Republic, Greece, Hungary, Malta, Poland and Portugal
March 21, 2019: A group of Filipino fishing boat operators, backed by some former government officials, are preparing a lawsuit to put before the ICC (International Criminal Court), which the Philippines no longer recognizes. President Duterte announced in March 2018 that the Philippines was withdrawing from the ICC, a process that takes a year to become final and as of March 17th the process was complete. This is in response to UN members persuading the ICC to investigate the Philippines for its war on drugs and what some UN members are calling crimes against humanity. Filipino critics of the war on drugs back the continued ICC investigation and possible prosecution of senior government officials, including Duterte. Therefore the current ICC complaint against China is being pursued by Filipino citizens and not the Filipino government. All this is more about publicity and obtaining more foreign support against China. In response to that China has been using cash, threats and other incentives to gain international support for its South China Sea operation. So far that is working for China.
March 11, 2019: North Korean leader Kim Jong Un is apparently planning a visit to Russia, which is the only neighbor left that can help with smuggling. Russia may not be able to help because Russia is increasingly an obedient client of China rather a somewhat equal ally. Russia cannot afford to defy China in such an obvious way by doing for North Korea what China refuses to do. If Russia cannot help North Korea is faced with growing economic misery and popular unrest at home while the United States and its allies continue to hunt down and disable the many smuggling operations North Korea still uses. Many of these overseas money raising operations are risky to begin with and not as profitable to earlier efforts carried out with more cooperation from China and less scrutiny from the West.
March 7, 2019: The Chinese government said it was investigating Filipino accusations that Chinese ships were still preventing Filipino fishing boats from working near Pagasa Island, a traditional Filipino fishing area. In late January China appeared to have reduced to 42 the number of warships and naval militia boats near Pagasa. China had as many as 95 of these ships off Pagasa in late 2018 as the Philippines began a construction project on the island to create more land and put up more buildings. China is also concerned with the increasingly frequent visits of American warships to the Philippines (for leave and maintenance) and the South China Seas (to challenge Chinese claims.)
March 6, 2019: Commercial satellite photos show that North Korea has resumed work on the Sohae missile launch facility since the collapse of denuclearization negotiations a week ago. Some work had taken place to dismantle facilities at Sohae but that effort never went far and appeared to be just for show and not a serious effort to accomplish anything. Resumption of construction on nuclear weapons and ballistic missile sites will make the shortage of construction materials even more acute. Stalled construction projects are increasingly common all over North Korea, even in the capital. North Korea is now more dependent on China than ever because only China can assist in evading the sanctions to increase exports (mainly raw materials) and imports (of food and industrial goods).