Rats and Black Mouths

by Kevin D. Freeman on September 30, 2011

In 1999, two Chinese Colonels wrote a revolutionary book that was published by the PLA Press titled Unrestricted Warfare. This powerful book demonstrated an understanding of 21st century warfare that was virtually unknown in the traditional military establishment. Even today, too few in the Pentagon understand the revelations made. Global power is no longer the exclusive domain of standing armies, navies, or air force. Modern warfare is much more complex and can involve things such as attacking or manipulating the Internet or, in the words of the Chinese authors, causing a stock market crash or manipulating global currencies.

There is enormous documentation regarding the fact that certain Chinese have been active in corporate espionage centered on cyber attacks. These can be obvious because our cyber defenses can document such attacks. It is harder to detect stock market or currency manipulation. This is viewed as a benefit of the strategy as documented both by the Chinese Colonels and later in an official Communist Party publication endorsing economic weaponry.

We are in process of building a cyber defense framework. The Cyber Command represents a very substantial investment by the Pentagon:

“To prepare our military for emerging cyber threats, we have developed a DoD Cyber Strategy. This strategy holds that our posture in cyberspace must mirror the posture we assume to provide security for our nation overall. Namely, our first goal is to prevent war. We do this in part by preparing for it. And we do so while acknowledging and protecting the basic freedoms of our citizens.”

Deputy Defense Secretary William J. Lynn III, July 15, 2011

There is little doubt that the Chinese have been active in cyber attacks. Their government denies involvement but there is common belief that cyber warfare is institutional as well as cultural. Such skills have been incubated as part of the Unrestricted Warfare approach.

Today, there was a CNBC article describing substantial market manipulation inside Chinese markets:

‘Rats’ and ‘Black Mouths’ Manipulate China Stock Market

To be sure, that type of scheme is facilitated by the herd mentality of China’s retail investors, who account for some two-thirds of stock market turnover and are known to trade on very short-term horizons based less on fundamentals than on daily rumors about policy support for certain sectors or deals by individual companies.

The sheer amount of effort the China Securities Regulatory Commission (CSRC) has devoted to combating the problem of insider trading is one indication of the extent of the problem.

The CSRC has in the past year published more than half a dozen statements about insider trading on its website, in addition to holding symposiums on the issue, after China’s cabinet ordered a crackdown late last year.

The CSRC declined repeated requests for comment. But the regulator said in a statement on its website this month that it had taken on 83 new cases of market malpractice in the first half of this year, including 45 cases of insider trading.

We are certain that the Chinese have instituted cyber attacks and we have responded with significant defense efforts. In fact, the Department of Defense has made it known that cyber attacks could trigger a direct (kinetic) response. We should be equally aware that the Unrestricted Warfare doctrine calls for stock market manipulation. We have proof that a culture of such manipulation has been developed in Chinese markets. Has it been weaponized? What defenses have we prepared in such a case?

The revelation of internal Chinese market manipulation should be a wake up call to authorities.

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

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