China: Power and Perils S t r at for Global Intelligence STRATFOR 221 W. 6th Street, Suite 400 Austin, TX 78701 Copyright © 2010 by STRATFOR All rights reserved, including the right of reproduction in whole or in part Printed in the United States of America The contents of this book originally appeared as analyses on STRATFOR’s subscription Web site. ISBN: 1453866078 EAN-13: 9781453866078 Publisher: Grant Perry Editor: Michael McCullar Project Coordinator: Robert Inks Designer: TJ Lensing Contents Introduction vii ANoteonContent xi CHAPTER 1: The GeoPolitiCs of China Geography 1 GeopoliticalImperatives 5 GeopoliticsandCurrentPosition 12 EconomicDimensionsofChineseGeopolitics 15 Conclusion 17 CHAPTER 2: Economy RidingtheRural Tiger 19 WhyChinaNeedsU.S. Debt 26 TheEconomicRecessionin China 30 OvercapacityinChina’sSteel Industry 36 TheRealEstateMarketin China 41 RevisingHukouasaKeytoEconomic Reform 47 Carbon,Coaland Copenhagen 50 TheSignificanceofChina’sExpandingRailway System 53 iii Contents TheDragonof Inflation 58 TheShakyStructureofanEconomic ‘Miracle’ 67 SpreadingLabor Unrest 75 CHAPTER 3: PolitiCs UnderstandingChina’sNew Regime 81 Beijing’sTibetan Dilemma 89 ChinaandtheEnduring Uighurs 91 InternalDivisionsandtheChineseStimulus Plan 98 China’sCorePower Struggle 105 China’sShaky Statistics 117 LeadershipTransitionandEconomic Challenges 124 Lookingto2012:China’sNextGenerationof Leaders 131 CHAPTER 4: SeCurity SpaceandSea-LaneControlinChinese Strategy 153 PeacekeepingandtheResponsible Stakeholder 159 TheChallengesofa‘Defensive’Nuclear Arsenal 161 China’sNewNeedforaMaritime Focus 163 China’sPlanforaBlue-Water Fleet 170 ObstaclestoaNewNaval Strategy 181 TheSouthChinaSeaandSubmarine Warfare 189 FieldingaNewAnti-Ship Capability 192 EspionagewithChinese Characteristics 196 iv Contents CHAPTER 5: International relations Beijing’sObviousHandattheU.S.OlympicTorch Run 221 ANewApproachonAfrican Oil? 228 AStrategicPipelinetoCentral Asia 232 China,Myanmar:Re-engagementandPipeline Politics 238 U.S.,China:RisingTensionsAmidIranSanctions Push 241 CrunchTimeinU.S.-Chinese Relations 248 U.S.,China:ConflictingInterestsinSoutheast Asia 257 v China Terrain introduCtion FollowingtheSept.11,2001,attacks,theUnitedStateslaunched what it initially termed the“global war on terror” (GWOT).This offensive sought to apply the full force of all five of the levers of counterterrorism power (intelligence, military might, diplomacy, lawenforcementandfinancialsanctions)againsttheglobaljihadist movement and its vanguard, al Qaeda.While the GWOT is now referredtoas“counteringviolentextremism”bytheObamaadmin- istration,theoffensiveeffortsthatcompriseditareongoing.Forall practical purposes, the counterterrorism campaign of the Obama administrationisacontinuationofthecampaignbegunbytheBush administration. Over time, all military organizations adapt as they adopt new technologies,changeorganizationaldoctrinesandemploynewtactics onthebattlefield.Experience,battlefieldlossesandsuccesses—and theuseofnewtechnologiesandtacticsbytheenemy—combineto helpdrivethesechanges.Clearly,thereisabigdifferencebetween theU.S.militaryoftodayandthemilitarythatfoughtinVietnam. Indeed,thereisevenasubstantialdifferencebetweenhowtheU.S. militaryisequippedandoperatestodayandhowitwasequippedand operatedwhenitinvadedIraqinMarch2003. Itshouldcomeasnosurprise,then,thatinthealmostnineyears thattheUnitedStatesanditsallieshavefocusedtheircounterter- rorismeffortsagainstthejihadistmovement—andadjustedthose effortstomakethemmoreeffective—themovementhaschanged andadaptedinresponsetothepressure.Thispressurehascausedthe al Qaedaorganization—themilitaryandideologicalvanguardof vii China: Power and Perils thejihadistmovement—toloseitssanctuaryandinfrastructurein Afghanistan,manyofitsoperationalleadersandagreatdealofits financialsupport.Indeed,asanorganization,al Qaedatodayisamere shellofwhatitwasbeforethe9/11attacks. Aspressurewasbeingappliedtothemainal Qaedagroup,regional ornationalmilitantgroupsinplaceslikeIraq,theSinai,Indonesia, AlgeriaandSomaliaembracedtheideologyofjihadismandsoughtto useal Qaeda’sbrandnameasawaytoattractrecruitsandfundingto theirorganizations.Becauseofthis,asthecoreal Qaedagroup(what werefertoasal Qaedaprime)wassufferinglosses,theseregional affiliates,orfranchises,cametoeclipseal Qaedaprimeastheprimary militarythreatemanatingfromtheglobaljihadistmovement.These franchiseshavegenerallyfollowedapatternwheretheyriseup,con- ductsomespectacularattacks,andthengetstruckdown.Wehave seenthispatterninSaudiArabia,IndonesiaandtheSinaiPeninsula, andnowitisseeminglybeingreplicatedinIraqandAlgeria,where theal Qaeda franchisesthe IslamicState ofIraqand al Qaeda in theIslamicMaghrebappeartobeontheropes.Insomeplaces,such asEgyptandLibya,thesefranchiseshavenotbeenabletobecome operationallyeffective. Thistrendtowardthedecentralizationofjihadistmilitaryactiv- ityhascontinuedastheleaderoftheal QaedafranchiseinYemen, Nasiral-Wahayshi,hascalledforindividualMuslimstoembracethe ideologyofjihadismandconductsimpleattackswherevertheyare. Inessence,al-Wahayshiisencouragingsuchindividualstoembrace theconceptofleaderlessresistanceduetotheheavypressurebeing broughtagainstal Qaedaprimeandthefranchises,pressurethathas limitedtheirabilitytogetjihadiststotrainingcampsinPakistanand Yemenandhashamperedtheirabilitytoconductterroriststrikesin theWest.Thiscallforleaderlessresistancewasechoedbyal Qaeda prime in March 2010, when Adam Gadahn, an American-born spokesman for the group, praised Ft. Hood shooter Nidal Hassan andurgedhisaudiencetofollowtheexampleofHassanandattack targetsthatarecloseandfamiliar. viii Introduction STRATFOR began to chronicle the decentralization of the jihadistmovementin2004,andthisbookisacollectionofourbest andmostrepresentativeanalysesofthetopicsincethattime.Our forecastingandanalysishasnotalwaysbeenwellreceived,however, especiallywhenourassessmenthasnotalignedwithpublicopinion orgovernmentanalysis.Forexample,ourassessmentofthejihad- ist movement directly contradicted the U.S. National Intelligence EstimatepublishedonJuly17,2007(seepage32),andwetooka greatdealofheatoverthatfact.Time,however,hasvindicatedus,and ourassessmentofal Qaedain2007wasshowntobethecorrectone. Whilesuchashifttowarddecentralizationhaspresentedprob- lemsforcounterterrorismforces,ithasalsoprovedproblematicfor thejihadists.Foronething,decentralized“leaderless”operativestypi- callylackthedegreeofterroristtradecraftassociatedwithtrainedter- roristoperatives.Thismeansthattheirplotsarefrequentlydiscovered beforetheycanbelaunched,ortheattacksarepoorlyplannedand executed,resultinginfailedattempts. Inthefinalanalysis,thethreatposedbyjihadistshasbeenmiti- gatedbytheeffortstakenagainstal Qaedaprimeandtheal Qaeda franchises.Webelievetheycanstillconducttacticalstrikesandkill people,buttheylacktheabilityatpresenttocarryoutstrategically significantattacksandcoordinatedcampaigns.However,aslongas theideologyofjihadismsurvives,theseorganizationswillbeableto recruitnewoperativesandcontinuetheirstruggle.Thismeansthat theseorganizationscouldregenerateifthepressureistakenoffof themandtheyaregiventheopportunitytoregroupandreorganize. Indeed,fortheUnitedStatesanditsallies,therisksaremanyifthey shifttheirfocusawayfromjihadists,astheyhavedonebefore. STRATFOR Austin,Texas Aug.2,2010 ix a note on Content STRATFOR presents the following articles as they originally appeared on our subscription Web site, www.STRATFOR.com. ThesepiecesrepresentsomeofourbestanalysesoftheIslamistmili- tantgroupal QaedasinceJune2004,organizedunderchapterhead- ingsandpresentedintheorderinwhichtheywerepublished.Since mostofthearticleswerewrittenasindividualanalyses,theremay beoverlapfrompiecetopieceandchaptertochapter,andsomeof the information may seem dated. Naturally, many of the observa- tionshereinarelinkedtoaspecifictimeoreventthatmaybeyears removed from al Qaeda’s situation today. However, STRATFOR believesbringingthesepiecestogetherprovidesvaluableinsightand perspectiveonasignificantandhistoricglobalphenomenon. xi China as an island CHAPTER 1: the GeoPolitiCs of China June 15, 2008 Geography ContemporaryChinaisanisland.Althoughitisnotsurrounded bywater(whichbordersonlyitseasternflank),Chinaisbordered byterrainthatisdifficulttotraverseinvirtuallyanydirection.There are some areas that can be traversed, but to understand China we mustbeginbyvisualizingthemountains,junglesandwastelandsthat encloseit.ThisoutershellbothcontainsandprotectsChina. Internally, China must be divided into two parts: the Chinese heartlandandthenon-Chinesebufferregionssurroundingit.There isalineinChinacalledthe15-inchisohyet,eastofwhichmorethan 15inchesofrainfalleachyearandwestofwhichtheannualrainfall isless.ThevastmajorityofChineseliveeastandsouthofthisline,in theregionknownasHanChina—theChineseheartland.Theregion ishometotheethnicHan,whomtheworldregardsastheChinese.It isimportanttounderstandthatmorethanabillionpeopleliveinthis area,whichisabouthalfthesizeoftheUnitedStates. The Chinese heartland is divided into two parts, northern and southern,whichinturnisrepresentedbytwomaindialects,Mandarin inthenorthandCantoneseinthesouth.Thesedialectsshareawrit- ingsystembutarealmostmutuallyincomprehensiblewhenspoken. TheChineseheartlandisdefinedbytwomajorrivers—theYellow RiverinthenorthandtheYangtzeintheSouth,alongwithathird 1 China: Power and Perils lesserriverinthesouth,thePearl.TheheartlandisChina’sagricul- turalregion.However—andthisisthesinglemostimportantfact aboutChina—ithasaboutone-thirdthearablelandperpersonas therestoftheworld.ThispressurehasdefinedmodernChinesehis- tory—bothintermsoflivingwithitandtryingtomovebeyondit.