The Chinese Take a Long Term View; Evaluating Their 5YP

by Kevin D. Freeman on February 21, 2011

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While Americans tend to focus on the next quarter or at least the next election cycle, the Chinese have tended to think in terms of decades. This can provide an enormous strategic advantage in many areas. It also requires a longer-term perspective when analyzing any Chinese actions. It is therefore important for our defense and intelligence leadership to carefully review China’s 12th Five-Year Plan (12FYP) that covers the years 2011-2015 in light of what we have revealed in regard to Economic Warfare.

According to a report by Willy Lam at East Asia Intel (http://www.east-asia-intel.com/eai/), the Chinese now believe that their long-term path to the dominant position economically and militarily is finally within their decade-long horizon:

“While the world’s eyes are glued to China’s 12th Five-Year Plan (12FYP) (2011-2015), security experts are looking at leads and telltale tidbits about the People’s Liberation Army’s (PLA) military Five-Year plan (MFYP) for the same period. Unlike the civilian version, the gist of which will be released at the National People’s Congress in early March, the MFYP will remain under wraps.The goal of the national 12th FYP is to smooth the way for the Chinese economy to overtake that of the U.S. in ten years or less. The military MFYP’s objectives are similar: to expeditiously close the gap between the PLA’s capacity and that of the U.S. armed forces.”

We have already demonstrated in our prior reports:

  1. That the Chinese strategic military doctrine of Unrestricted Warfare call for the use of economic weapons against U.S. interests if necessary to achieve Chinese goals. This was published in 1999 by the PLA Press, reflecting the approved thinking of the People’s Liberation Army.
  2. The ruling Communist Party essentially agreed with the doctrine of Economic Warfare and recently advocated its use against the U.S. in its official publication, Qiushi Journal.
  3. That even while pursuing Economic Warfare efforts, the Chinese very actively hide such efforts, masking them as “market forces.”

The nature of the next phase of Economic Warfare is also well defined. We have termed it Phase 3. According to the Qiushi Journal, there is a very clear understanding of the vulnerability of the U.S. dollar as reserve currency. Likewise, the Chinese are well aware of the high U.S. debt levels and how to use them to their advantage. They also clearly understand energy issues that we face due to political constraints. Finally, the Chinese understand that U.S. budgetary problems will likely lead to a scaling back of defense expenditures just as they continue to build the PLA. Ironically, we pioneered a similar strategy that was effective in collapsing the Soviet economy and ultimately the Soviet Union.

Many have argued that the Chinese threat is overstated. They base such arguments on the belief that the Chinese would never act against their economic interests. They also point to the Chinese military budget as being less than 20% of U.S. military spending. Both arguments have serious flaws. First, we know that the Chinese had serious holdings in Lehman Brothers, Fannie Mae, and Freddie Mac. Yet, despite their collapse in late 2008, the Chinese still emerged substantially stronger on a relative basis in the global economy. In other words, despite losing money they advanced toward the goal of being the top economy in the world. In an economic warfare perspective, this is simply suffering casualties while gaining the objective.

In terms of military spending, there are two major flaws of understanding. First, Americans tend to think only in terms of hardware and personnel. The Chinese think in terms of technique. So, is economic espionage included in the military budget? No, but it does represent part of the Unrestricted Warfare strategy. The same may be said for use of cyber weapons and market manipulation. At the same time, most experts agree that the official Chinese military budget reflects only about one-third of actual expenditures. This is true to both confuse the West and to hide reality from liberal intellectuals in the country who are demanding greater expenditures on social welfare programs. The way the economy is structured with such a vast array of State-run enterprises, the world may never know exactly how great the military budget actually is.

As for the willingness to use Economic Weapons, according to a recent Wikileaks of confidential diplomatic cables, that process has already begun. In fact, according to those cables, Chinese officials pressured Treasury Secretary Geithner to support an expedited purchase of $1.2 billion of shares in Morgan Stanley. While there is no record of Geithner’s response, only a single day later the Chinese Investment Corp (a $200 billion Chinese Sovereign Wealth Fund) announced the purchase. All of this is contained in a Reuter’s report from 17 February 2011:

Special report: China flexed its muscles using U.S. Treasuries

http://www.reuters.com/article/2011/02/17/us-wiki-china-treasury-idUSTRE71G47920110217.

To summarize:

  1. The Chinese take a long-term view.
  2. Their goal is to achieve economic and military superiority within a decade.
  3. They recognize the value of Economic Weapons, including collapsing the dollar if needed to achieve their goals.

We know all of this from official sources. We also have evidence that supports this reality. Most recently, we see that the Chinese are acquiring gold at a very rapid pace. According to a report in The Street, (http://www.thestreet.com/story/11009124/1/a-chinese-gold-standard.html):

“China bought 175.2 tons of gold in the fourth-quarter of 2010, bringing its grand total for the year to 579.5 tons, or 18.5 million ounces, according to the World Gold Council. That’s a lot of gold. The U.S., in comparison, consumed 233.3 tons in 2010. It’s unknown how much of that gold was consumed by citizens or its central bank, but the question still remains — What will China do with all that gold? There is a controversial theory percolating in the gold community that China wants the yuan to become the world’s reserve currency and is buying gold and silver in order to do it.”

While we can’t know for certain, the rapid acquisition of gold represents another significant puzzle piece that is consistent with other evidence suggestive of Economic Warfare as we have been describing.

All posts Copyright (c) 2011 Kevin Freeman, All Rights Reserved

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