China is Losing the New Cold War

At first glance, it may not seem that China is really engaged in an arms race with the US. After all, China’s official defense budget for this year – at roughly $175 billion – amounts to just one-quarter of the $700 billion budget approved by the US Congress. But China’s actual military spending is estimated to be much higher than the official budget: according to the Stockholm International Peace Research Institute, China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.

In any case, the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.

If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.

On the macro level, China’s growth is likely to continue to decelerate, owing to

  • rapid population aging,
  • high debt levels,
  • maturity mismatches, and the
  • escalating trade war

that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.

Moreover, while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.

.. The problem for the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.

Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.

The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”

Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries. Despite early signs of trouble – which, together with the Soviet Union’s experience, should give the CPC pause – China seems to be determined to push ahead with the BRI, which the country’s leaders have established as a pillar of their new “grand strategy.”

An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return. According to AidData at the College of William and Mary, from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.

Now, China has pledged to provide $62 billion in loans for the “China-Pakistan Economic Corridor.” That program will help Pakistan confront its looming balance-of-payments crisis; but it will also drain the Chinese government’s coffers at a time when trade protectionism threatens their replenishment.

Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

China is Losing the New Cold War

In contrast to the Soviet Union, China’s leaders recognize that strong economic performance is essential to political legitimacy. Like the Soviet Union, however, they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US.

When the Soviet Union imploded in 1991, the Communist Party of China (CPC) became obsessed with understanding why. The government think tanks entrusted with this task heaped plenty of blame on Mikhail Gorbachev, the reformist leader who was simply not ruthless enough to hold the Soviet Union together. But Chinese leaders also highlighted other important factors, not all of which China’s leaders seem to be heeding today.
.. But overseeing a faltering economy was hardly the only mistake Soviet leaders made. They were also drawn into a costly and unwinnable arms race with the United States, and fell victim to imperial overreach, throwing money and resources at regimes with little strategic value and long track records of chronic economic mismanagement. As China enters a new “cold war” with the US, the CPC seems to be at risk of repeating the same catastrophic blunders.
.. China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.
.. the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.
If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.
.. China’s growth is likely to continue to decelerate, owing to rapid population aging, high debt levels, maturity mismatches, and the escalating trade war that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.
.. while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.
.. the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.
.. Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.
.. The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”
.. Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries.
.. An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return.
.. from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.
.. Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

Why Hackers Aren’t Afraid of Us

a group of finance ministers to simulate a similar attack that shut down financial markets and froze global transactions. By several accounts, it quickly spun into farce: No one wanted to admit how much damage could be done or how helpless they would be to deter it.

.. something has changed since 2008, when the United States and Israel mounted the most sophisticated cyberattack in history on Iran’s nuclear program, temporarily crippling it in hopes of forcing Iran to the bargaining table.

.. the sophistication of cyberweapons has so improved that many of the attacks that once shocked us — like the denial-of-service attacks Iran mounted against Bank of America, JPMorgan Chase and other banks in 2012, or North Korea’s hacking of Sony in 2014 — look like tiny skirmishes compared with the daily cybercombat of today.

.. Yet in this arms race, the United States has often been its own worst enemy. Because our government has been so incompetent at protecting its highly sophisticated cyberweapons, those weapons have been stolen out of the electronic vaults of the National Security Agency and the C.I.A. and shot right back at us.

.. the WannaCry ransomware attack by North Korea last year, which used some of the sophisticated tools the N.S.A. had developed.

.. Nuclear weapons are still the ultimate currency of national power, as the meeting between President Trump and Kim Jong-un in Singapore last week showed. But they cannot be used without causing the end of human civilization — or at least of a regime. So it’s no surprise that hackers working for North Korea, Iran’s mullahs, Vladimir V. Putin in Russia and the People’s Liberation Army of China have all learned that the great advantage of cyberweapons is that they are the opposite of a nuke: hard to detect, easy to deny and increasingly finely targeted. And therefore, extraordinarily hard to deter.

.. Cyberattacks have long been hard to stop because determining where they come from takes time — and sometimes the mystery is never solved.

.. Today cyberattackers believe there is almost no risk that the United States or any other power would retaliate with significant sanctions, much less bombs, troops or even a counter cyberattack.

.. “They don’t fear us,”

.. At the State Department, the eviction took weeks, shutting down systems during negotiations on the Iran nuclear deal. The hackers were even bolder at the White House. Instead of disappearing when they were exposed, they fought back, looking to install new malware as soon as the old versions were neutralized.

.. It appears the attackers just wanted to prove they could go, and stay, anywhere in the American government’s network.

.. the United States never called out the Russians for what they were doing.

.. If Mr. Putin thought there was no price to be paid for invading White House systems, why wouldn’t he attack the Democratic National Committee?

.. By the summer of 2016, some Obama administration officials, waking to the threat, proposed counterstrikes that included exposing Mr. Putin’s hidden bank accounts and his ties to the oligarchs and cutting off Russia’s banking system. But the potential for escalation caused Mr. Obama and his top aides to reject the plan.

“It was an enormously satisfying response,” a senior American official told me later, “until we began to think about what it would do to the Europeans.”

Mr. Obama also understandably feared that anything the United States did might provoke Mr. Putin to tinker with election systems just enough to give credence to Donald Trump’s warning that the system was “rigged.”

.. Since the election, the American retaliation has included closing some Russian consulates and recreation centers and expelling spies — actions one Obama national security official called “the perfect 19th-century solution to a 21st-century problem.”

.. The wide-open vulnerabilities in America’s networks have essentially deterred the United States from credibly threatening retaliation against the Russians, the Chinese, the North Koreans and the Iranians.

.. One way to start is to make sure no new equipment goes on the market unless it meets basic security requirements. We won’t let cars on the road without airbags, so why do we do less with the systems that connect them to the internet?

.. Second, we must decide what networks we care most about defending — and make those priorities clear. Mr. Mattis’s threat to turn to nuclear weapons hardly seems credible — unless the cyberattack would create an existential threat to America. That requires an intensive public review of what is critical to our nation’s survival.

..President Trump forfeited the perfect opportunity when he decided against a commission to learn the larger lessons from the 2016 election.

.. the United States needs to end the reflexive secrecy surrounding its cyberoperations. We need to explain to the world why we have cyberweapons, what they are capable of and, most important, what we will not use them for.

..  it is in the nation’s interests to develop global norms clarifying that some targets are off limits: election systems, hospitals and emergency communications systems, and maybe even electric power grids and other civilian targets.

.. Microsoft’s president, Brad Smith, has proposed digital Geneva Conventions that begin to establish those norms, outside the structure of governments and treaties.

.. Intelligence agencies hate this idea: They want the most latitude possible for future operations in an uncertain world. But in any arms control negotiation, to create limits on others, you need to give up something.

 

 

Why Is Trump So Afraid of Russia?

The former C.I.A. director John Brennan pulled no punches on Wednesday when he was asked why President Trump had congratulated his Russian counterpart, Vladimir Putin, for his victory in a rigged election, even after Mr. Trump’s national security staff warned him not to.

.. Some Trump defenders noted that President Barack Obama also called Mr. Putin when he was elected president in 2012.

But the circumstances are very different. In the intervening years, Mr. Putin has become an increasingly authoritarian leader who has crushed most of his political opposition and engineered a deeply lopsided re-election this week.

.. Russia annexed Crimea in 2014, is waging war in other parts of Ukraine and is enabling President Bashar al-Assad in Syria.

.. While the administration recently imposed its first significant sanctions on Russia for election interference and other malicious cyberattacks and has faulted Russia for the poisoning of a former Russian spy and his daughter in Britain, Mr. Trump has refrained from criticizing Mr. Putin or calling him to account. The phone call reinforced that approach.

.. What Mr. Trump didn’t say to Mr. Putin was as significant as what he did say. He did not demand that Mr. Putin stop meddling in American elections or others, he did not even raise Moscow’s role in the poisoning.

.. A senior administration official told The Times that Mr. Trump didn’t want to antagonize Mr. Putin because fostering rapport is the only way to improve relations between the two countries. On Tuesday, the president said he hoped to meet Mr. Putin soon and discuss preventing an arms race — an arms race both leaders have encouraged with loose talk and investment in new weapons.
Engaging Russia and preventing an arms race are undeniably important. But it’s hard to see how praising and appeasing a bully will advance American interests. That’s not the approach Mr. Trump has taken with adversaries like North Korea or Iran, or, for that matter, even with some allies.
..  John McCain, Republican of Arizona, slammed Mr. Trump, saying “an American president does not lead the free world by congratulating dictators on winning sham elections.” Even the Senate majority leader, Mitch McConnell, who rarely crosses Mr. Trump, said calling Mr. Putin “wouldn’t have been high on my list.”