New Military Base In Afghanistan Will Extend China’s Sway


Wakhan, Badakhshan province, Afghanistan. Photo credit: Tom Hartley; Licenced under Creative Commons.

CHINA HAS A small frontier with Afghanistan, a horseshoe-shaped border of fewer than 100 kilometres around the eastern end of the Wakhan Corridor (seen above), the isolated, mountainous valley on the roof of the world wedged between Tajikistan and Pakistan that connects Afghanistan’s northeastern province of Badakhshan with the western marches of Xinjiang.

The corridor is an ancient trade route, spilling into Xinjiang through the Wakhjir Pass, but has long been closed at the Chinese end for fear of the drugs, Uighur separatists or other extremists that might flow through it.

Map showing location of Wakhan Corridor in Afghanistan

It does, though, open up into a much larger space, the one being created by the United States’ patchwork withdrawal from international affairs, and into which Beijing is venturing, albeit tentatively.

China will be funding, supplying and likely building, a military base in Badakhshan, according to Gen. Dawlat Waziri, the Afghan Defense Ministry spokesman, quoted by Russian news sources.

The base’s location has yet to be settled. Afghan forces will garrison it (and thus it will not be a Chinese military base, as the Defence Ministry insists).

However, Xu Qiliang, vice chairman of the Central Military Commission, speaking after meeting a delegation to Beijing in December headed by acting Afghan Defence Minister Tariq Shah Bahrami, said Beijing would build the base sometime in 2018 to “strengthen pragmatic cooperation in areas of military exchange and anti-terrorism and safeguard the security of the two countries and the region, making contributions to the development of China-Afghanistan strategic partnership of cooperation”.

Beijing and Kabul already have a 2015 border policing agreement that involves equipment supply, training and joint patrols. There have been reports of Chinese forces operating on the Afghan side of the border since 2016. A report by the French news agency AFP last October quoted local Kyrgyz saying Chinese soldiers had been intermittently bringing them food and warm clothing for the past year.

The Defense Ministry has confirmed counter-terrorism and anti-cross-border crime operations but has dismissed Central Asian and Indian reports of Chinese military vehicles patrolling inside Afghanistan.

The policing relationship has already expanded to the defence side with a pledge by Beijing of $70 billion in military aid to the Afghan government over three years.

The proposed new base would represent a step up on that co-operation. It would effectively be a forward base for cutting off any support coming from Afghanistan for militant factions of the Muslim Uighur population that once formed a majority in Xinjiang but is now outnumbered by Han Chinese following years of inward migration.

Islamic State’s regrouping in Afghanistan following the military defeat of its self-declared caliphate in Syria and Iraq is particularly concerning for Beijing because of its recruitment of ethnic Turkmen jihadis, some of whom have links with Uighur separatists who want to establish a state of East Turkestan.

China has also offered to involve Kabul in the $60 billion China-Pakistan Economic Corridor (CPEC). Afghanistan could provide an alternative route to some or all of the CPEC, which itself has security concerns. To this end, Beijing has been mediating disputes between Pakistan and Afghanistan whose common border is tribal lands where neither government’s law runs writ.

China is already part of the Quadrilateral Coordination Group, comprising Afghanistan, China, Pakistan and the United States, whose task of bringing an end to the Afghan civil war has foundered on the combination of deteriorating relations between Islamabad and Kabul and eroding trust between Beijing and Washington. Using bilateral relationships, Beijing could exploit its relationship with Islamabad to use the influence the Pakistan military has over Afghanistan’s insurgents to rein in the Taliban, even to the point of bringing them into peace talks (although that would not help it deal with the threat of Islamic State).

The emergence of an alliance of Pakistan and China in Afghanistan, in partnership with Russia, would be challenging to the United States’s close relationship with the Kabul government and another example of Beijing building alternative security alliances to its own specifications — all further signs of the gradual expansion of China’s growing clout in the region and willingness to use it.


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China Reaffirms Its Arctic Ambition

Drift ice in the Arctic Ocean seen from the deck of the Chinese icebreaker Xue Long, 2010. Photo credit: Timo Palo. Licenced under Creative Commons

THIS BYSTANDER NOTED China’s Arctic ambition as long ago as 2010. Since then global warming has made northern shipping routes from Asia to Europe through the Arctic only more feasible as summer sea ice has further diminished.

In 2013, China acquired observer status at the Arctic Council, which comprises nations with an Arctic littoral (full members) or an interest in the region (observers). The previous year, the Ukraine-built diesel-powered Xue Long (Snow Dragon; seen above in 2010) then the world’s largest non-nuclear icebreaker, had made the first passage from China to Iceland through the far north.

It has been participating in Arctic research trips since 1999; China has had a research station on the Spitzbergen Archipelago since 2004. A larger and stronger indigenously designed version, the Xue Long 2, is due to come into service next year. It will be a hybrid research vessel-ice breaker that can carry up to 90 scientists and crew. Nuclear-powered icebreakers will follow. Development contracts were signed between the National Nuclear Corporation and State Shipbuilding Corporation in 2016.

Not only would a northern route through the Arctic lessen the costs and dangers of shipping Chinese goods to Europe via the traditional and lengthier sea routes through the Moluccan Straits, the Indian Ocean and the Horn of Africa, it would also make drilling for oil and gas a practical possibility. The region may hold up to a quarter of the world’s untapped fossil energy reserves.

On Friday, the State Council Information Office, the government information office directed towards foreign audiences, released an English-language white paper, China’s Arctic Policy, that sets out Beijing’s intentions towards the development (and conservation) of Arctic resources over the coming decades, in particular, shipping routes.

It manages to slip in the presumably intentionally eye-catching phrase, Polar Silk Road, there times but the document is mainly an affirmation of the long-standing position that China sees itself as having interests in the Arctic and intends to be active in the region’s economic development and governance.

Chinese mariners, fishermen, scientists, petroleum engineers and even tourists plying the increasingly less icy waters of the Arctic in ever more significant number, will concern Russia, for one. The United States will see yet more evidence of China’s asserting itself globally, notably when the white paper says responsibility for the region now goes beyond the eight nations, including Russia and the United States, with territorial sovereignty in the Arctic.

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China’s Economy: Normal Slowing Will Resume in 2018

THE ECONOMY STORMED along in the second half of last year, taking growth for the year to 6.9%, comfortably outstripping the official target of ‘around 6.5%’.

It was riding the coattails of the fiscal stimulus introduced in the first half of the year and also the pick-up in global trade, partly helped by the robust growth in the United States and some recovery in Europe, which boosted China’s exports. At 8.7% of China’s GDP growth, net export volumes made their largest contribution to growth since 2008.

Policymakers have been managing a slowdown from the giddy decades of double-digit growth. The overall lesson from last week’s figures is that economy is fitfully rebalancing and that there was some slowdown in credit growth as official efforts to cool the property market, deleverage and upgrade industrial capacity gained some traction.

That last year turned out to be the first acceleration since 2010 should prove to be an anomaly. Normal slowing will resume this year. And especially if policymakers push ahead with measures to control financial risks.

The most recent forecast from the World Bank, which recently upped its estimate of GDP growth in 2017 to 6.8% (a 0.3 percentage point increase from its forecast a year ago and reiterated in June) says it expects 6.4% growth this year (a 0.1 percentage point increase from its previous number).

Beijing has plenty of headroom in meeting its 2010 target of doubling aggregate and per capita growth by 2020. The economy needs to average no more than 6.3% growth to achieve that.

That headroom will also let Beijing tackle its most pressing economic-related problems: curbing escalating debt; cutting excess heavy industrial capacity; becoming environmentally cleaner; and dealing with the risk of unemployment as the economy is rebalanced towards domestic consumption and higher-value-added manufacturing.

Where the margins of safety are considerably thinner is if there is a trade war with the United States.

As we noted recently, US President Donald Trump is itching to impose tariffs on Chinese steel and aluminium imports into the United States. More recently Washington has said that an investigation into intellectual property transfers to China has been launched, with Trump warning that China is in for “a very big intellectual property fine”.

His self-restraint because he needs Beijing’s help with North Korea is wearing thin. Nor will it have been helped by the revelation that an ex-CIA officer arrested in New York this week may have been the mole responsible for passing information to Chinese intelligence that led to the dismantling and death of the CIA’s intelligence network in China between 2010 and 2012.

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The Weighty Matter of China’s Carrier-Borne Aircraft

CHINA’S FIRST INDIGENOUSLY designed aircraft carrier is expected to start its sea trials shortly, probably immediately after lunar new year.

The sister ship to the Liaoning, a refitted former Soviet carrier, was launched in April and has since been being fitted out in the Dalian yards where it was built (see below).  The Liaoning is currently at sea on a training mission for the crew that will man the new carrier.

Satellite image of China's first indigenous aircraft carrier being fitted out at Dalian, 2018

The still unnamed new carrier is pencilled in to enter active service at the end of this year.

Meanwhile, in the Jiangnan yards in Shanghai, work is proceeding on the next generation of Chinese carriers — and this time under a roof to hide the construction  from prying eyes in the sky.

The Type 002s will be conventionally, not nuclear powered and about 40% larger than the Type 001/001As (which at 60,000 tons displacement are mid-sized at best for carriers).  Their most significant difference is that they will employ a catapult system, not a ‘ski-jump’ to launch their aircraft.

Building the first of the next generation of carriers had been held up while the PLA-Navy (PLA-N)’s crack marine engineers solved the problem of how to power the catapult system.

The PLA-N had always wanted to go straight to an electromagnetic aircraft launch system (EMAL), similar to the ones on the latest US carriers. EMALs impose less wear and tear on the planes than steam-catapult launches, allow faster launches than with either ski or steam-catapult systems and allow the aircraft to carry heavier payloads.

Most importantly, the only carrier-borne aircraft the PLA-N has is a marine version of the J-15, based on 30-year old Soviet designs and the heaviest active carrier-based fighter jet in the world. Steam catapults would struggle to launch them.

However, EMALs are energy-ravenous. To date, only nuclear-powered carriers can utilize them. Conventionally powered carriers in all navies have to use steam-power, and China is not yet at the point of development of its carrier fleet where the vessels can be nuclear powered (though that is only a matter of time).

However, the PLA-N’s engineers have cracked the problem of generating enough power for an EMAL on a non-nuclear powered vessel with a head-to-tail redesign of a ship’s energy generation, storage and distribution systems. As a bonus, it will also potentially provide the power needed to launch missiles and other weapons systems.

Our man with the blueprints and T-square says that the solution ‘builds on’ the first-generation integrated propulsion system used on the United States’ Zumwalt-class guided missile destroyers which were launched in 2013.

Solving the power problem had held up development of the Type 002 carriers, which state media has previously reported had started in 2015, because the choice of launch system affects the design of the ship.

The logjam was reportedly only cleared in November after an intensive year of testing and development. Rear Admiral Yin Zhuo  told state television that month that J-15s had conducted thousands of take-offs using the electromagnetic launch system. The Navy has built a land-based test rig, just as it has a test aircraft deck in Wuhan.

China has been trying to develop a lighter fighter, the FC-31/J-31 fifth-generation stealth fighter, to replace the J-15. Shenyang Aircraft Corp., which also makes the J-15, has built two prototypes. One was shown off at the Zhuhai air show back in 2014.

However, further development has, we hear, been bedevilled by technical problems. The first test flight of a prototype was not until the end of 2016, and with a larger plane than initially intended. The proposed carrier version is larger still, leaving the PLA-N little better off regarding weight than it is with the J-15.

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World Bank Ups Its Prospects For China’s Economy

THE WORLD BANK has become more bullish on China, at least for the near-term. In its newly published annual Global Economic Prospects, it has upped its estimate of GDP growth in 2017 to 6.8% (an 0.3 percentage point increase from its forecast a year ago and reiterated in June) and said it expects 6.4% growth this year (an 0.1 percentage point increase from its previous number).

China benefited, the Bank now says, from the recovery in world trade last year, fiscal stimulus and the rebalancing of the economy, which eased the drivers of the economy away from state-led investment. Inflation rose but was still within target and housing price increases moderated in response to policy measures.

The current account surplus continued to narrow, but the clampdown on capital outflows meant that exchange-rate pressures eased and foreign-exchange reserves recovered modestly.

On the flip side, non-financial sector debt continued to grow, reaching 260% of GDP, regardless of further monetary and regulatory tightening. Credit growth still outpaces nominal GDP growth.

The Bank says that financial sector vulnerabilities — particularly high corporate indebtedness in sectors with overcapacity and deteriorating profitability — are one of the key downside risks to growth.

Others include the possibility of protectionist policies in advanced economies (for which read the United States) and rising geopolitical tensions (for which read mainly North Korea).

The Bank also expects the economy to continue its measured deceleration, averaging 6.3% growth in 2019 and 2020, and less beyond that as adverse demographics kick in over the next decade.

A steeper-than-expected slowdown or debt- or geopolitical-driven financial stress would have impacts well beyond China’s borders.

The Bank’s view is that authorities have substantial ‘policy buffers’ to absorb financial shocks. Nonetheless, it, like others, calls for further structural reform to reallocate economic activity towards more productive sectors.

This would include financial and corporate sector reform as well as greater efforts to deleverage and improve the fiscal sustainability of provincial, municipal and local government.

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China Caught Between Smuggled Oil And Trade Wars

BOTH CHINA AND Russia deny Western accusations that their vessels have been involved in ship-to-ship transfers of oil on the high seas to North Korean tankers in likely contravention of UN sanctions against the Pyongyang regime for its missile testing programme.

Since November, South Korea has detained two ships — one Hong Kong- and the other Panama-registered, alleged to have been involved in such transactions while the UN Security Council has blocked three North Korean- and one Palau-flagged ships from docking at international ports on suspicion of carrying or transporting goods banned by sanctions.

The United States has a list of six more such vessels it wants internationally sanctioned, five China-flagged and one Hong Kong-flagged. Last week, Beijing blocked Washington’s efforts at the UN to have the six ships blacklisted.

In September, the UN cut North Korea’s allowed imports of refined oil to 2 million barrels a year. Its latest round of sanctions further cut the annual quota to 500,000 tonnes and 4 million barrels of crude oil, required the repatriation of all North Korean contract workers abroad within 24 months, and a crackdown on ships smuggling banned items including coal and oil to and from the country.

The United States had wanted a complete ban on oil imports and a freeze of the overseas assets of the government and its leader, Kim Jong-un. That it did not get them, seems to have frayed the patience of the ever-mercurial US President Donald Trump. He told the New York Times last week,

“I have been soft on China because the only thing more important to me than trade is war…If they’re helping me with North Korea, I can look at trade a little bit differently, at least for a period of time. And that’s what I’ve been doing. But when oil is going in, I’m not happy about that.”

Trump had earlier tweeted that China had been “caught RED HANDED” (his all caps) allowing oil into North Korea.

The prompt for that public accusation was a Chosun Ilbo report quoting South Korean government sources as saying that U.S. spy satellites had detected Chinese ships transferring oil to North Korean vessels about 30 times since October. Which is a very roundabout way for a US president to make an accusation based on his own country’s intelligence, especially since U.S. State Department officials have confirmed Washington had evidence that vessels from several countries, including China, had engaged in transshipping oil products and coal to North Korea.

China had long turned a blind eye to smuggling to North Korea but in 2017 started to crack down on it as it shifted stance and began to turn the economic screws on Pyongyang.

The question now is whether Beijing is still turning a selective blind eye. Or is North Korea’s smuggling network, which includes bartering via Russian ports and forging the nationalities and destinations of ships, so well organised that it is beyond being able to be shut down?

The broader concern is that either way Trump will take it as an excuse to move onto his confrontational anti-China trade agenda in 2018. Trump has long argued that foreign countries are taking advantage of America and that America needs to fight back — and that is a message he wants to use to rile up his base support, in 2018 ahead of the US mid-term elections, and again in 2020 when he will be running for re-election as president.

The White House is split on the wisdom of starting a trade war. However, the word from our man in Washington is that the ‘America First’ economic nationalists among Trump’s advisors are currently ascendant and pushing to strike early ahead of the mid-terms while the president himself is itching to slap tariffs first on Chinese electronics and then on steel and aluminium.

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Carbon Trading In China Is A Slow Burn

A coal-fired power plant in Shuozhou, Shanxi province, China. Licensed under the Creative Commons Attribution 3.0 Unported license. Photo credit: Kleinolive.CHINA, THE WORLD’S biggest polluter, is taking the slow road to market-based initiatives to tackle climate change.

As far back as June 2011, Wang Shu of the National Development Reform Commission (NRDC)’s Climate Change office said, “The initial plan is to establish carbon emissions trading schemes in some pilot regions, and try to establish a unified national system in 2015.”  By 2015, the deadline for a national carbon market had been pushed back to 2017, though pilot markets had started running in seven cities from 2013.

On December 19, the NRDC finally announced a nationwide carbon emission trading system. That sort of met the delayed deadline. But only sort of.  It will cover only the power generation industry — such as the coal-fired power-generation plant in Shuozhou seen above — and not the total of eight heavy industries originally proposed.

Also, implementation details are still to be worked out. The start of trading is probably at least a year away.

Nonetheless, the announcement marks a milestone on the way to establishing a what will be by some distance the world’s largest national carbon market. With more than 1,700 power-generating firms with aggregate carbon-dioxide emissions of 3.3 billion tonnes — about one-third of China’s greenhouse gas emission — the new market will surpass the EU’s Emissions Trading System (EU-ETS) in size to become the world’s largest.

By comparison, the seven pilot markets traded emission quotas covering 200 million tonnes of carbon dioxide (with a traded value of 4.6 billion yuan, or $700 million).

Both the EU and China’s are cap-and-trade markets. In these, governments set a cap on allowable emissions and then issue companies with emissions credits adding up to that cap. The market incentive is for companies to cut their emissions so they can sell unused allocations to corporate polluters who are exceeding their share of the cap; and for the heaviest polluters to reduce their emissions to cut their costs. In a perfect world, carbon pricing drives innovation in low-carbon technologies and promotes a shift to a clean energy economy.

Environmental economists have a rule of thumb that a price of at least $35 for a tonne of carbon is needed to make companies change their behaviour. In the EU-ETS, carbon is trading at around $7 a tonne and has done for several years.

That is likely to be the initial price when China’s national market starts. The challenge will be to steer the market, so it gets the price to above $35 a tonne.

Plenty of details still have to be worked out.  National systems for reporting data, registration and trading will have to be set up. Once trading starts, there is also likely to be a phase of free trading so companies can get used to market. That could last as long as a year.

Only then will the market be able to be expanded beyond electricity generators. There are some 7,000 companies in industries from cement making to paper production that are likely eventually to be brought under the carbon market regime.

A successful cap-and-trade scheme relies on a strict but feasible cap that decreases emissions over time. China at least has a starting point in that regard. In its voluntary targets submitted to the UN’s climate talks in Paris in 2015, Beijing said it aimed to cut carbon dioxide emissions per unit of GDP by 60-65% from the 2005’s level by 2030, the year in which it is expected to hit peak emissions.

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