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China’s ‘Triple Bubble’ Economy Poised to Burst

After a nearly disastrous start to the year in January and February, China’s economy steadied itself in March. Now, the early April indicators suggest a continuation of the uptick.

The China bulls, however, are premature in their projections of a sustained recovery. To the contrary, the economy appears poised to be a default or two away from a world-shaking crash.

When economic indicators look too good to be true, as China’s now do, they signal trouble ahead. There are two principal reasons why the present circumstances are cause for alarm. 

South Korea, US Can’t Wait for Beijing to Approve Missile Defense

On Monday, a South Korean official implored Beijing to understand his government’s desire to deploy the Terminal High Altitude Area Defense system, THAAD as the missile-defense system is known.

“I hope to ask China’s understanding of what Korea is feeling about the North Korean threat,” said Shin Beomchul, director general for policy planning of the Foreign Ministry, to an audience in Washington, D.C. “It is not the usual threat, it is a nuclear threat. That’s very serious. We are now in the live-or-die situation.”

To deal with this existential nuclear threat, the occupant of the Blue House has attempted various approaches during her tenure. President Park Geun-hye began her term with the “trustpolitik” policy of building trust with Pyongyang. When that failed, she started to speak of a unified and democratic Korean state.

China Takes Custody of Taiwan Nationals in Kenya

On Tuesday, Beijing took custody of 37 Taiwan nationals in Kenya and flew them to China. This followed China’s taking of eight other Taiwan citizens from that country on Saturday.

Nairobi said the 45 were "deported," but Minister Hsia Li-yan of Taiwan’s Mainland Affairs Council used the term “rude and savage.” “Savage” may be a bit of an exaggeration, but the apprehension of the individuals, who arrived in China in hoods and handcuffs, appears to have been an “extrajudicial abduction,” as Taipei first termed it. In any event, the incident undercuts the spirit of cooperation embodied in the 2009 Cross-Strait Joint Crime-Fighting and Judicial Mutual Assistance Agreement.

Did Trigger-Happy North Korea Take a Shot at China?

On March 29, North Korea launched a projectile from a location near the port city of Wonsan. The ballistic missile or artillery shell traveled about 125 miles on a northeast path, in other words, toward China, landing near the border.

South Korean Defense Ministry analysts speculate that the North originally planned to fire the projectile out to sea but changed plans and pointed it inland instead due to last-minute problems. That seems highly unlikely, however, because if there were indeed problems they would not risk firing into China.

The NightWatch site maintains that the trajectory was intentional as well as “unprecedented.” In all probability, the North Koreans meant to send a hostile message to Beijing.

Relations between the People’s Republic of China and the Democratic People’s Republic of Korea seem to deteriorate by the week. They are each other’s only treaty ally, but in recent years ties have evidently eroded. Now, the bilateral relationship has become, in my view, the most fascinating one in the world to watch.

China's Show of Force in Indonesian Waters

China has called on Indonesia to release eight crew members from a fishing boat that was seized in mid-March. The tense standoff could be the result of a new phase of lawlessness in China’s behavior in the South China Sea.

 On the 19th, a Chinese coast guard vessel entered the sovereign waters of Indonesia off one of the Natuna Islands. Just 2.7 miles from shore, the Chinese vessel rammed a Chinese fishing boat, the Kway Fey, to free it as it was being towed by an Indonesian craft. Indonesia had just seized the Kway Fey for illegally fishing in Indonesia’s exclusive economic zone.

 China’s embassy in Jakarta claimed the Chinese craft was in a “traditional Chinese fishing ground,” but there is no such concept either in the U.N. Convention on the Law of the Sea, which Beijing has ratified, or customary international law.

China’s 2016 Military Budget Up Only 7.6%

The biggest surprise to emerge from the highly scripted National People’s Congress annual meeting, which concluded last week in Beijing, was the announcement that the country’s military budget would increase a mere 7.6 percent this year. The figure is well below last year’s announced 10.1 percent jump and is the first single-digit rise since 2010, when the generals and admirals had to live with 7.5 percent.

Undoubtedly, the publicly announced budget does not include all military expenditures, but the percentage change is generally thought to indicate the spending trend line for the People’s Liberation Army.

Missile Defense in the Era of Kim Jong Un

“Our hydrogen bomb is much bigger than the one developed by the Soviet Union,” reported the state-run DPRK Today on Sunday. “If this H-bomb were to be mounted on an intercontinental ballistic missile and fall on Manhattan in New York City, all the people there would be killed immediately and the city would burn down to ashes.”

North Korea’s threat followed its release on Wednesday of pictures showing Kim Jong Un standing next to what was reported to be a nuclear warhead. Although the object—a shiny sphere that has been compared to a 1970s disco ball—was most likely a mock-up of a weapon in development, it is probably just a matter of years before his technicians build a real one.

China's Capacity to Project Power Is Going Global

Tuesday, Chinese Foreign Minister Wang Yi said that China is looking to build “some infrastructure facilities and support abilities,” Beijing’s code for military bases, outside China. “I believe that this is not only fair and reasonable but also accords with international practice,” he said.

If Wang sounded defensive, it is because for decades China adamantly insisted it would never maintain such bases outside its borders.

At the moment, however, the Chinese navy is building “support facilities” in Obock in Djibouti, on the Horn of Africa, which guards the southern entrance to the strategically important Red Sea. The location is generally considered, inside China and elsewhere, as the first of the country’s foreign military bases.

More are on the way as China develops port projects around the Indian Ocean. Take the Chinese-funded Colombo International Container Terminal, for instance. In both September and October 2014, the Sri Lankan government allowed a Chinese submarine and its tender to dock there, which shocked and angered New Delhi.

As Trade Tumbles, China and Russia Inaugurate New Rail Line

On Saturday, China inaugurated a “new freight route” to Russia as a train left Harbin, the capital of northeastern Heilongjiang province, for Yekaterinburg in Russia, 5,889 kilometers away.

The new route will slice 30 days off the previous 40-day journey by land and sea.

Chinese and Russian media celebrated the departure of 47 containers carrying $1.46 million of bicycle parts and other light industrial products, mostly manufactured in southern China.

Beijing and Moscow are trying to keep up appearances, missing no opportunity to publicize economic ties. Many aspects of the relationship between the two capitals are blossoming, but trade is not one of them.

Last year, bilateral commerce between the two giants amounted to a miniscule $64.2 billion, down 27.8 percent from 2014 according to China Customs.

Obama Administration's Secret Overture to North Korea

Yesterday, the Wall Street Journal reported that at the turn of the year the Obama administration discussed the initiation of talks with North Korea with the goal of formally ending the Korean War, which was only suspended by a truce, not ended with a treaty, in 1953.

According to the Journal report, the White House dropped the US’s long-standing precondition that the North would have to end its nuclear program before talks could begin. Instead, the administration said that denuclearization would simply be an agenda item in the peace negotiations. The North reportedly rejected Obama’s overture, refusing to permit its nuclear program to even be placed on the agenda. Pyongyang then detonated a nuclear device on January 6, ending the White House’s “diplomatic gambit.”

The paper’s report, if true, indicates the Obama administration was willing to execute another stunning reversal of American policy by essentially accepting the Democratic People’s Republic of Korea as a nuclear state and condoning its violations of the Nuclear Non-Proliferation Treaty.

Could a Missile Defense Plan Turn China on North Korea?

On Monday, China’s Foreign Ministry urged Washington to start direct talks with North Korea over its most destructive weapons.

“The focus of the nuclear issue on the peninsula is between the United States and North Korea,” said Hong Lei, ministry spokesman, at the daily news briefing. “We urge the United States and North Korea to sit down and have communications and negotiations, to explore ways to resolve each other’s reasonable concerns and finally reach the goal we all want reached.”

Beijing, with the urging of the Bush administration, had sponsored the so-called Six-Party Talks, which began in 2003. The concept was that progress was possible when the US and all regional stakeholders—China, Russia, Japan, and South Korea—were present in discussions with North Korea.

The White House thought that giving China a leading role would bring out the best in Beijing, which would then use its considerable leverage to “denuclearize” the Kim regime. North Korea and China are each other’s only formal ally.

China Communist Party Elder Speaks Out Against Censorship

Censorship has gone too far, contends Zhou Ruijin, 76, in an essay published in China in January and on Phoenix TV’s ifeng.com early this month. “To be frank, some leaders in the party’s propaganda department were managing the press like how they would manage a train schedule, directly intervening in the approach and procedure of news reporting,” he wrote.

Zhou, a leading liberal writer in the 1990s, attacked today’s propaganda chiefs for taking down offending websites and deleting postings, calling these actions contrary to the concept that the Communist Party govern the country according to law. Moreover, he condemned “waves of campaigns, strict clampdowns, and public shaming,” the last a reference to the parading of people making Cultural Revolution-style confessions on television.

“In a phase of social transition, it is normal that there are different views and discussions in the field of ideology, that the public air their own opinions on deepening reforms,” wrote Zhou. “They can only be guided, but not repressed.”

Where Is China’s Central Bank Chief?

In China and elsewhere, there is increasingly intense speculation as to why Zhou Xiaochuan, the highly acclaimed governor of the People’s Bank of China, has for months been silent about the renminbi, the ailing Chinese currency. His silence and absence is most unusual and apparently prompted IMF Managing Director Christine Lagarde to chide Beijing at Davos last month for the government’s inadequate communication with financial markets.

Zhou, notably, stayed away from the central bank’s August 13 press conference, held just two days after the shock devaluation of the yuan, as the Chinese currency is informally known. Though he appeared at a G-20 finance meeting in Ankara in early September, he has since vanished. That he skipped Davos, raised eyebrows.

China-Iran Upgrade Their 'Comprehensive Strategic Relationship’

Chinese President Xi Jinping just wrapped up his three-nation tour to the Middle East with a visit to Iran.  

The global narrative is that Beijing and Tehran are strengthening relations and for good reason: during the visit the two sides inked 17 accords, treaties, and letters of intent.

The two republics—one “People’s” and the other “Islamic”—also declared they had agreed, in the words of the official Xinhua News Agency, “to elevate their ties to a comprehensive strategic partnership.” And they appear to have meant it. As Xi’s Iranian counterpart Hassan Rouhani said on Saturday, “Today we discussed the strategic relationship between both countries, setting up a comprehensive 25-year plan and also promoting bilateral relations of up to $600 billion over the next 10 years.”

China's Economy Slides, Stocks Tumble, Capital Takes Flight 

Stocks around the world have generally tumbled this month, but last Tuesday was a bright spot as equity markets surged. Then, Beijing's National Bureau of Statistics reported its first estimate of China's gross domestic product for 2015.

The official agency pegged last year's growth at 6.9 percent. The percentage increase, roughly in line with analyst expectations, was the lowest in 25 years.

So why does a dour report trigger optimism among stock investors? Investors now believe the Chinese central government will step up stimulus to restart growth, which has been falling since 2011. Furthermore, there is a hope that state entities and government-backed funds in China—the so-called “National Team”—will begin a new round of buying in China’s two share markets. Both developments are considered good for Chinese stocks.

And what is good for stocks in China is often thought to be good for stocks everywhere else.

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