Total world military expenditure rose to $1686 billion in 2016

Military spending in North America saw its first annual increase since 2010, while spending in Western Europe grew for the second consecutive year.

World military expenditure rose for a second consecutive year to a total of $1686 billion in 2016—the first consecutive annual increase since 2011 when spending reached its peak of $1699 billion.* Trends and patterns in military expenditure vary considerably between regions. Spending continued to grow in Asia and Oceania, Central and Eastern Europe and North Africa. By contrast, spending fell in Central America and the Caribbean, the Middle East (based on countries for which data is available), South America and sub-Saharan Africa.
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Don’t Buy Don’t Sell in the Trump era

After authorising the firing of 59 Tomahawk missiles (each costing around $1.5 million) at a Syrian airbase with no apparent consequential strategic purpose and diminishing none of the Syrian regime’s chemical weapons capability, the maker of the Tomahawk missiles, Raytheon’s stock rose sharply, adding more than $1 billion to its market capitalisation. Other missile and weapons manufacturers, Boeing, Lockheed Martin, Northrop Grumman and General Dynamics, also saw their stock rose considerably – collectively gaining nearly $5 billion in market value. This on its own may not matter much, after all, which president of the USA has not dropped  expensive bombs on some ‘remote’ nations of the world. But this time may be different.

Trump used anti-establishment and anti-corporate language during his election campaign to distinguish himself from all other candidates – he opposed neoconservative foreign policy, financial and corporate interests, notably Goldman Sachs. Now, after his inauguration, you can hardly see much difference between his foreign policy plans and policies proposed by neoconservatives. His cabinet looks like a ‘who’s who’ of Goldman Sachs alumni. He ratcheted up the military tension in the South China Sea, ordered a failed major special force operation in Yemen, and now seems to be pushing the USA to the edge of nuclear war with North Korea. The more he uses militaristic confrontational rhetoric and actions, the more ‘presidential’ he  looks in the eyes of the mainstream media. He seems ‘unstoppable’.

But is he, really?

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Calling North Korea ‘crazy’ won’t help with anything

Trump’s North Korea policy will reportedly focus more on pressuring Beijing to constrain North Korea, and on additional sanctions.

Two things to keep in mind: don’t underestimate North Korean leader Kim Jong Un, and don’t forget South Korea. …

Kim’s desire for deterrence – to not end up like Saddam Hussein or Muammar Gaddafi – helps explain the existence of its weapons program. Someone who has participated in more than a decade of Track 2 dialogues with the North Koreans once recounted to me how North Koreans asked them: “Would the Americans have gone in and done what they did to Gaddaffi, and to Syria, if they had what we have?’ Continue reading

China boosts arms exports by 74%, while becoming more self-sufficient

Comparing two five-year periods between 2007-11 and 2012-16, the volume of Chinese exports of major arms increased by 74 per cent. Its share of the global total of exports rose from 3.8 to 6.2 per cent, making it the third-largest supplier in the world, following the United States and Russia.
Unlike the US, which accounts for one-third of exports and supplies at least 100 countries, China delivered major arms to 44 countries, mostly in Asia and Africa. More than 60 per cent of China’s exports went to Pakistan, Bangladesh and Myanmar and another 22 per cent went to Africa.

China has also been expanding its market. In 2015, it exported type 90 multi-barrel rocket launchers to Peru, the first time Chinese weapons were used to equip Peru’s armed forces. A report released by the Pentagon last April estimated that China’s arms sales from 2010 to 2014 totalled about US$15 billion. Continue reading

Chinese Cooperative and Basic Income

Finally, all Huaidi citizens have had a basic income of 1500 yuan [US $221] per year since 1995, which is directly transferred to their bank accounts in shares of 125 yuan [US $18.5] per month. For children under 18, this money is kept in parents’ accounts. This amount money was significant in 1995 (Chinese cities’ nominal per capita annual income was about 5000 yuan [US $738] in 1995), but not as much now, due to the rapid rise of GDP in the last 20 years (in 2015, the nominal per capita annual income in Chinese cities was about 50,000 yuan [US $7,379]).
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China’s J-20 Stealth Fighter

The J-20 was developed as a foil to advanced U.S. fighters, including fourth generation F-16 Fighting Falcons and F/A-18 Hornets and, more directly, fifth-generation F-22 Raptors and F-35 Lightning fighters.

In 2009, a breach of F-35 project resulted in the theft of several terabytes of data. Though the attack was never publicly attributed to China by the U.S. government, visual similarities in the chassis of the J-20 to the F-35 have led commentators to speculate that the stolen F-35 intellectual property helped state-owned Chengdu Aerospace Corporation develop their fighter.
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China’s Debt Burden

We typically think of the economy as consisting of four sectors: the external sector, households, businesses, and the government. In China however it is more practical to subdivide these further into the following:

  • Creditors. Creditors are forced to absorb the losses associated with writing down the debt when the borrower defaults on its debt and restructures it with a principle or interest reduction. Much of China’s debt burden has been extended through the banking sector, however, and because the debt that must be written down exceeds the banking industry’s capital base, ultimately the cost will be passed on to some other economic sector – for example Chinese households ultimately absorbed the cost of the banking sector losses generated in the late 1990s.
  • The external sector. To pass on costs to foreigners requires that they have significantly larger exposure to China than they actually do, and would also probably require defaulting on external debt, a path Beijing is unlikely to choose to follow.
  • Ordinary households. Most banking crises, like the recent US and European crises and the Chinese banking crisis at the end of the 1990s, are resolved by hidden transfer mechanisms that pass the cost of writing down debt to households. China today however must increase household wealth, not reduce it, if consumption is to rise fast enough to allow investment to decelerate, which means ordinary households cannot be allowed to absorb the cost.
  • Wealthy households. Given high levels of income inequality, and the low propensity to consume of the wealthy, forcing them to absorb the costs of writing down debt – in the form of highly progressive income taxes, for example – is likely to be among the less costly ways economically for Beijing to pass on the costs of paying down debt. As their income or wealth is reduced, the wealthy are likely to convert most of that reduction into lower savings and very little of it into lower consumption, thus minimizing its adverse impact on domestic demand.
  • Small and medium enterprises. Chinese SMEs are among the most efficient economic entities in China and are likely to be the main source of innovation and value creation in the future. Their long-term success is vital to China’s long-term growth. Like ordinary households they should be protected from absorbing the costs of Beijing’s debt-management policies.
  • Local and provincial governments. These have amassed a considerable amount of assets whose liquidation would most efficiently absorb debt write-down costs and would entail the lowest medium and long-term economic costs, although not perhaps the lowest political costs. As their assets are liquidated, total Chinese savings will decline and Chinese consumption will remain largely unchanged, thus minimizing the adverse impact on domestic demand.
  • The central government. Beijing too could pay for the cost of writing down debt by liquidating central government assets, although this may conflict with other economic policy objectives, including overcoming vested-interest opposition to the reforms.

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The Surprisingly Swift Decline of US Manufacturing Employment

So why did American trade policy make such a big difference, even though tariffs didn’t fall? Pierce and Schott can’t say for sure, but they speculate that it has to do with patterns of investment.

Giving Chinese companies confidence that tariffs would stay low encouraged them to invest in production capacity aimed at supplying the American market. And giving American companies confidence that tariffs would stay low encouraged them to build supply chains around Chinese manufacturers.

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Anti-China TPP rhetoric is wrong

“As we speak, China is negotiating a trade deal that would carve up some of the fastest-growing markets in the world at our expense, putting American jobs, businesses and goods at risk.”

Actually this is not the way the economy works. If China reduces trade barriers with other countries in Asia, allowing the region to grow more rapidly, then it should also make the United States more prosperous. The region would be a bigger source of demand for U.S. exports and a more efficient provider of goods and services to the United States. That was exactly the logic of the Marshall Plan that helped to rebuild West Europe after World War II. Greater economic integration in the region, even if engineered in part by China, is something that the United States should applaud, not fear. Continue reading

China: Who is militarising the South China Sea

China’s view.

It is the U.S. that has been enhancing military deployment in neighboring regions of theSouth China Sea.

The U.S. not only acquired access to eight military bases in the Philippines, thesuperpower has also continued increasing its military presence in Singapore and sentwarships and aircraft to the South China Sea.

What’s more, it has repeatedly pressured its allies and partners to conduct targetedmilitary drills and patrols to play up regional tension.

Besides selling weaponry to the Philippines, Vietnam and other Southeast Asian countries,the U.S. also repeatedly sent missile destroyers, strategic bombers and anti-submarinepatrol aircraft to approach or even enter relevant reefs and islands, as well as the adjacentwaters and air space of China’s Nansha and Xisha Islands. Such acts betray ambition toprovoke China.

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SIPRI: International arms trade on the rise

The majority went to Asia and to the crisis region of the Middle East. Between the Persian Gulf and the Bosphorus, imports of heavy weapons – the SIPRI report is concerned only with these – rose by 61 percent. Between 2011 and 2015, India was the only country to import more weapons that Saudi Arabia – a land with just 30 million inhabitants. Compared with 2006–2010, the oil sheikhdom’s arms purchases have almost trebled. Number four in the list of the biggest importers of arms is the United Arab Emirates, with a population of barely five million. Turkey is number six.

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Is China facing a foreign exchange crisis

First, just to get oriented, let’s keep in mind why China has been losing its reserves. As the piece notes, it has been trying to keep its currency from falling. Note that for years, the United States and other countries have wanted China to raise the value of its currency. The argument was that it had accumulated vast amounts of reserves to keep the value of its currency low in order to maintain large trade surpluses.

Now the story is that if China decided not act – it did not use its reserves to buy up the currency being sold by people trying to get some of their money out of the country – the Chinese currency would fall against the dollar and other currencies. Would this be a problem for China? Continue reading

Russia deploys latest jets SU-35S to Syria

“It’s a great airplane and very dangerous, especially if they make a lot of them,” one senior U.S. military official with extensive experience on fifth-generation fighters told me some time ago. “I think even an AESA [active electronically scanned array-radar equipped F-15C] Eagle and [Boeing F/A-18E/F] Super Hornet would both have their hands full.”

The Syrian deployment will allow the Russian air force to gain valuable operational experience on the Su-35 — even if four warplanes don’t add a decisive material value to the fight.
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The $2 trillion redline

During the 1980s, the Cold War and the global nuclear arms race propelled total military spending in the world higher than ever before. After the fall of the Soviet Union, the idea of the “peace dividend” got hold and for a short while, it did indeed look like that was where the world was going and that global military spending would gradually normalise to a much lower level, appropriate for a reduced-conflict, non-confrontational, uni-polar world. The two biggest spenders saw the biggest drop in their spending. Russia simply could not afford the Soviet level of spending after the collapse of the Soviet Union, and its economy went from crisis to crisis, further diminishing their ability to spend. In the United States, without any notable enemy and significant military threats to their national security, military spending gradually came down while the economy boomed. It came down to the lowest point in recent history in the middle of the Clinton years. Since the USA is the largest military spending nation by far (accounting more than one thirds), it coincided with the lowest point in global military spending too.

trend 2 trillion
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J-20, F-35, F22: How China developed its fifth generation stealth fighters

This is probably oversimplified, but Yang is certainly an influential individual in the development of China’s modern military aircraft. Beckhusen argues that Yang has basically invented the Chinese evolutionary approach to designing and building combat aircraft. Instead of designing and building a brand-new aircraft from scratch, it “borrows” from other countries’ design, integrate some imported and/or indigenous technology, and produces it at a fraction of the price.
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Some Reflections of the Taiwanese Presidential Election 2016

Tsai Ing-Wen’s recent election  as Taiwan’s first female president and the first female ethnic Chinese head of state, has seen the international media full of praise of this historic moment. However, we should not get carried away. This is a historic moment similar to  Barack Obama’s election as the first Black president of the United States of America and, if it comes to pass, Hilary Clinton’s election as the first female US president. In times of prosperity and stability, these are s that are worthy of wide celebration and even euphoria, in times such as ours  -uncertain and going from crisis after crisis – the impact has a rather different effect. This is why Obama’s election, apart from some notable exceptions ie diplomatic foreign policy in the case of Iran and the Affordable Care Act, was largely symbolic, with business going on as usual. Apart from some fines levied on the Wall Street banks, there are no criminal convictions of bankers. It was the first time in American history that no criminal bankers have been brought to justice after a major financial fraud; an enormous opportunity missed to reform a not-fit-for-public-service financial system. The West is still mired in the Middle East, even though military interventions were restrained. US military spending experienced hardly a dip despite of sequestration (automatic cuts to federal spending) because of the liberal use of the Overseas Contingency Operations  (OCO) fund to make up any shortfalls. Profits of major defense contractors actually went up significantly during the Obama years and US arms sales to the rest of the world has gone from strength to strength.
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China’s Stealth Jet Fleet

When the squadron has enough planes and trained pilots and maintainers, the air force can declare the first J-20 unit “combat-ready”—a milestone most analysts expect sometime in 2017. At that time, China will join an exclusive club—as only the second country to field a fleet of frontline radar-evading jets. The American F-117, the world’s first stealth warplane, entered service with the U.S. Air Force in 1983. The U.S. B-2 stealth bomber followed in 1997, the supersonic F-22 stealth fighter in 2005, and the F-22’s smaller cousin the F-35 in July 2015.

By the 2030s, the Pentagon could possess as many as 1,700 F-35s plus 180 or so F-22s and 20 B-2s.

No other country has war-ready stealth warplanes, although Russia is working on one—and eight U.S. allies have ordered the F-35, with several more planning on also buying the plane in the near future. But while it’s pretty certain China will soon deploy J-20s, it’s not clear why—or how effectively—it will do so. Continue reading