Friday, January 18, 2013

风向转变时,有人筑墙,有人造风车

A few links worth reading and thinking about. We'll start here.
A new map to be released later this month by China’s National Administration of Surveying, Mapping and Geoinformation increases from 29 to 130 the number of disputed areas marked as officially part of the People’s Republic of China (PRC), including the Diaoyutai Islands (釣魚台) claimed by Taiwan and Japan.

Previous editions of the “Wall Map Series of National Territory,” which presented China’s claimed territory in horizontal format, only included the larger contested islands in the South China Sea in a separate box at the bottom right of the map, Xinhua news agency said at the weekend. The territories included in the box were half scale and not clearly detailed.

The new map is vertical and is to be distributed by Sinomaps Press on behalf of the Chinese authorities starting next month. It will for the first time display the entirety of the PRC’s claimed territory on the same scale as continental China.

“The new map will be very significant in enhancing Chinese people’s awareness of national territory, safeguarding China’s marine rights and interests and manifesting China’s political diplomatic stance,” Xu Gencai (徐根才), editor-in-chief at Sinomaps Press, told Xinhua.

That is an article you want to read in full.

Now that you have read that article, read this blog entry at the Defense News blog Intercepts, and oh yeah you really should read all the links they provide there too. I note that Christopher Ford is noting the behavior of the PLA, not the Chinese people as a whole, although anyone who has done any business with China is familiar with the cultural differences one finds between a Chinese business person educated primarily in China and a Chinese business person educated primarily outside of China, and with that in mind you can shape your own conclusions regarding what Christopher Ford is noting from his recent visit. The comments are interesting as well.

Bottom line, we aren't going to effectively convince the Chinese there is a problem with this map, so get ready for that map being their new normal position. I used to be glass half full regarding US relations with China heading into the 21st century, but I will admit I have had my fill of experiences over the last 6 months that is changing my view of China.

Meanwhile, This article at gCaptain is discussing the state of the Chinese shipbuilding sector and aircraft engines.
Chinese ministries are drawing up plans to stimulate the two sectors following studies led by high-level government officials late last year, including State Councilor Ma Kai, Miao Wei, head of the Ministry of Industry and Information Technology and Wang Yong, director of the State-owned Assets Supervision and Administration Commission, the report said.

Chinese ship builders have been grappling with weak demand and overcapacity, hurt by Europe’s debt woes in recent years, with orders and prices dropping sharply.

While the global economy is likely to bottom out this year, excess capacity will continue to weigh on ship builders, the report said. “It’s likely that 50% of Chinese ship builders will go bankrupt within two to three years,” the report cited an unnamed official as saying.
This is important. The Chinese shipbuilding sector became the largest in the world in 2010, but the sector has taken a major hit as the global economy has fallen off. The Chinese shipbuilding sector has been discussed as a strategic industrial infrastructure capacity that represents an important pillar of Chinese economic growth, and the government has prioritized the shipbuilding sector by staying engaged in their effort to grow shipbuilding as a key manufacturing sector.

But the shipbuilding sector in China has hit a crossroads, and we are about to learn a lot. Commercial orders are down and only able to fill so much capacity, and there are shipyards that have gone inactive over the last 12 months. The 12th Five-Year Plan period (2011-2015) speaks specifically regarding shipbuilding by stating China will "rationalize the sector's structure, to innovate and improve overall quality over the next three years."

That suggests we will start to see a consolidation and modernization of the Chinese shipbuilding sector. The key question is how much consolidation will there be, and to what degree will the government step up to fill orders when the sector is primarily under-performing on the commercial side due to the global economy down turn?

The United States has 6 major shipyards and 20 second tier smaller yards. China had at least 270 active large shipyards as of 2010 capable of building large ships, although like I mentioned several of those shipyards are struggling to find new orders and some have gone inactive. As best I can tell, the Chinese have been building their naval and government operated maritime vessels with only around 10% of their large shipyards, and for the last decade the shipbuilding sector in China has been growing primarily due to commercial orders for new ships, not government orders for government ships.

What does the PLA Navy look like if the Chinese decide to retain their shipbuilding sector through this downward economic period by keeping only 30 (~15%) of their major shipyards open via governemnt orders? I don't know what that would look like, but I will note that 30 major shipyards building navy ships is the same shipbuilding capacity the United States leveraged to build all warships in World War II. While no one would expect China to field ships at the same pace the US did in WWII, even if China adds orders of a single large PLAN vessel or multiple smaller vessels for 30 shipyards over 5 years while sustaining current construction pace for PLA Navy and government maritime agencies, the size of the PLAN and associated government maritime agencies could potentially triple by 2020.

Now tell me what it looks like if the Chinese government sustains 30%, or even 50% of their shipbuilding sector with government orders for PLA Navy and government maritime agency vessel orders. In theory, the Chinese government could decide to build their own 1000 ship Navy over the next 5 years by simply buying 2 ships at only 100 of their large shipyards for the sole political and economic purpose of saving the 50% of shipbuilders who are expected to go out of business over the next 2-3 years, with the very real alternative being that all those manufacturing workers become unemployed.

And given the kind of vessels China is starting to build, not to mention their renewed focus on airlift capacity, that brand new 1000 ship Navy may not be designed to be a regional defensive force, rather the largest global force in the world. This may sound far fetched, but the story of China's brand of communism is that the government steps in when the Chinese brand of capitalism starts to slack, and if you apply that model to a purpose of sustaining the shipbuilding sector during an economic down turn of a few years it would be an entirely rational political and economic move by the Chinese government to build Navy ships in low quantities at multiple shipyards, and while 100 shipyards sounds like a lot, that is actually only between 35-40% of their total shipbuilding capacity. Even if all 200 ships average 5000 DWTs, that would only be 1 million DWTs worth of ships, which would only make up about 10% of total DWTs the shipbuilding sector was down in 2012 from 2011. Still think it is far fetched? The Chinese could build 200 ships a year that averaged 5000 DWTs spread out across 100 shipyards and the Chinese shipbuilding sector is so large from it's 2010 high that the sector would still contract and consolidate.

I don't know about you, but I am very interested in what State Councilor Ma Kai, Miao Wei of the Ministry of Industry and Information Technology (MIIT) is going to recommend, because it could be a geopolitical game changer if the recommendation is for government to subsidize the Chinese shipbuilding industry with government orders - which would be the historical way nations deal with challenges facing key manufacturing sectors.

If this is a topic of interest, read the links. All of them. For the record,  the title is a Chinese proverb that when translated literally means 'when the wind of change blows, some build walls, while others build windmills.' It is another way of saying it is better to adapt than to be stubborn. When I think about the variety of topics discussed, I thought the proverb fit, not just the Chinese but us as well.

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