Category: China

China Doesn’t Need Spies

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Because our defense contractors are eager to sell them our defense secrets. It’s kind of ironic, they are outsourcing their espionage to us:

United Technologies and two of its subsidiaries sold China software enabling Chinese authorities to develop and produce their first modern military attack helicopter, U.S. authorities said June 28.

At a federal court hearing in Bridgeport, Conn., United Technologies and its two subsidiaries, Pratt & Whitney Canada and Hamilton Sundstrand, agreed to pay more than $75 million to the U.S. government to settle criminal and administrative charges related to the sales.

As part of the settlement, Pratt & Whitney Canada agreed to plead guilty to two federal criminal charges – violating a U.S. export control law and making false statements. The charges were in connection with the export to China of U.S.-origin military software used in Pratt & Whitney Canada engines, which was used to test and develop the new Z-10 helicopter.

Also as part of the deal, United Technologies and Hamilton Sundstrand admitted to making false statements to the U.S. government about the illegal exports.

Hamilton Sundstrand and Pratt & Whitney Canada also admitted that they had failed to make timely disclosures, required by regulations, to the U.S. State Department about the exports.

The government said that the $75 million settlement breaks down into roughly $20.7 million in criminal fines, forfeitures and other penalties to be paid to the Justice Department and roughly $55 million in payments to the State Department as part of a consent agreement resolving more than 500 administrative export control violations.

About $20 million of the fines will be suspended, to be used by the company for continuing to improve its export control procedures, and for hiring an independent monitor, United Technologies said.

As part of the agreement, the U.S. State Department also will impose a partial debarment of Pratt & Whitney Canada for new export licenses, although the company can request licenses on a case-by-case basis. The debarment does not affect United Technologies or Hamilton Sundstrand, and the Canadian unit can request full reinstatement in one year.

A law enforcement source familiar with the case said investigators believe United Technologies and its subsidiaries deliberately set out to provide the embargoed military technology to China to ingratiate themselves with Chinese authorities, hoping to win them entree into China’s lucrative civilian helicopter market, worth an estimated $2 billion.

To quote Karl Marx, “The last capitalist we hang shall be the one who sold us the rope.”

H/t my Dad.

It’s Jobless Thursday

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And initial jobless claim have fallen for the first time in over a month, by 12K to a still crappy 377K, but the 4-week moving average rose, as did continuing claims, though extended claims fell.  (It should be noted that extended claims are being impacted by people running out their strings, so the drop is not necessarily good news).

I would note that we also have a slightly wonkish bit data point, where the yield curve has inverted, indicating that the markets think that the markets are expecting a deflationary environment:

One could argue that this is a positive development for the US consumer because it could mean price stability. However this move in TIPS certainly raises the risk of near-term deflation, driven by weak demand growth. And deflation is notoriously difficult to get under control. This feels (though only in the near term) a bit like Japan, a nation quite familiar with zero to negative inflation expectations.

Normally, the longer a bond, the higher the rate, because there is a cost to having your money locked up for long periods, but under certain conditions,  like investors desperate for a safe haven, the rates drop as the term lengthens (up to a point).

In a not entirely not unrelated note, the Chinese central bank has unexpectedly cut its benchmark rate in response to their economy slows.

Not a good economic news day.

Jon Stewart is the Best Journalist in America

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Brilliant!

Stewart looks at Foxconn and what it does to its workers in order to make the iPhone.

He plays it for laughs, but he absolutely nails just how horrific the conditions are, and how little we actually save for the pain that we inflict.

He takes a complex issue, researches it, provides documentary evidence, and puts it all in context better than anyone in the news media today.

He is a national treasure.

Just Desserts

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You know, generally, I’m not in favor or murder. 

That being said, when I heard about this Chinese Tycoon’s poisoning, and I looked at the recipe, I thought, well, he had it coming:

Poisonous Herb Spices Cat Stew in Felonious Pot

By DAVID BARBOZA

SHANGHAI — There was one very disagreeable ingredient in the steaming hot pot of stew that may have killed a Chinese tycoon. And it was not the cat meat.

The police have detained a local township official on suspicion that he murdered the tycoon, a business associate who may have caught the official cheating, by dropping a poisonous herb into a cat-meat hot pot, a shared stew that is a local delicacy, China’s state-run news media reported Wednesday.

(emphasis mine)

I understand that they have different customs and dietary habits, but cat?

Whiskey Tango Foxtrot?

An Interesting Solution to the Problem of Phishing and Hacking:

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A web master has come to the conclusion that the first step in managing this sort of activity is to, “block all traffic from China:

I run quite a few few websites and blogs and my solution to this problem was first to BLOCK all traffic from China, I allow nothing, nada, zip from China based IPs. From my personal experience 100% of China’s internet traffic is hacking attempts, email SPAM and phishing. I have never encountered a single China access that could be considered positive.

Blocking China has solved about 80~90% of the problem. The second thing is to block specific domains and IPs from Russia, Romania, Brazil, Taiwan, Korea, Poland and may other ex Soviet Satellites. I can’t block all access to these countries because there is about 90% of legitimate traffic and the 10% left are probably compromised computers being used as proxies/bots for China.

I tried to find the original source for this and a quick google indicates that there are a significant number of web masters who are beginning to consider this as a first step for web security on their sites.

Obviously, I am not a webmaster, but I’m wondering just how wide spread this phenomenon is.

10 Percent of the Chinese Economy?

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It turns out that much of the lending to small businesses in China is done by loan sharks, because the official banks prefer to lend to large state owned enterprises.

That’s not shocking. Official Chinese societal structures have always been for the benefit of the few over the many.

That being said, a throw away line in a New York Times article is truly shocking:

Such illegal lending amounts to about $630 billion a year, or the equivalent of about 10 percent of China’s gross domestic product, according to estimates by the investment bank UBS.

10%?  10% of the f%$#ing Chinese economy is loan sharking???????

When the bubble bursts in China, and there is a bubble in China, it’s going to be incredibly ugly.

It’s Official, The PRC Will Be Operating a Carrier

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This has probably been the worst kept secret in Asia, but the head of the Chinese General Staff has admitted that they are refitting the former Soviet carrier Varyag as an operational aircraft carrier:

The head of China’s General Staff of the People’s Liberation Army (PLA) has confirmed that China’s first aircraft carrier is under construction.

Gen Chen Bingde refused to say when the carrier – a remodelled Soviet-era vessel, the Varyag – would be ready.

I don’t think that this ship will have any real military significance, but neither did the USS Langley.

This is not the development of a significant military capability, but rather like the Langley, it represents the ability to develop procedures and doctrine for later, and one would assume more capable, ships.

J-20 Video Pr0n

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What is with those huge landing gear doors?

Yep, someone got some (remarkably high quality) video of the J-20 doing taxi tests.

As an aside, the recent outpouring of “surreptitiously” snapped photos and videos of the new Chinese fighter prototype indicate that this is something that they really want us to see.

China Expected to Field First Carrier in 2011

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The Varyag is out of dry dock

It looks like the Chinese will be launching their first carrier this year.

It’s made from the hull (no equipment or propulsion when bought as scrap) of the old unfinished Soviet STOBAR aircraft carrier Varyag, and while I doubt that it will ever serve in anything remotely resembling a combat capability, neither did the USS Langley, though it did see service as a seaplane tender.

What is important here is that it means that China will be developing equipment, doctrine, and training for a carrier borne air wing.

This is a Classic Case of Deterrence

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It appears that the Chinese DF-21 anti-ship ballistic missile is operational, a 900 mile range anti-ship missile, at least according to Admiral Robert Willard, Commander, U.S. Pacific Command.

It’s intended to be a carrier killer, and while the capabilities, particularly the targeting, are unclear, but considering that the Pershing II’s MARV (MAneuverable Reentry Vehicle) got a roughly 30 m CEP, it will certainly give a CVBG cause to pause.

Even the warhead is nothing more than 150kg of high strength steel descending at 1000 m/s, it will still completely ruing a carrier skipper’s day.

There are 2 possibility two possibilities here, either this is an attempt by the Pentagon to hype the Chinese threat, or the Chinese are trying to create an effective no-go zone for the flat-tops by creating uncertainty steps to cut in the missile in an operational posture.

Then again, it might be both.

OK, It Looks Like I Was Wrong …… Again

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The trailing edge of the wing implies that stealth is not a high priority


The tail arrangement resembles MiG’s Project 1.44

It appears that the Chinese stealthy aircraft is the real deal.

The insignia, which I noted earlier when I called hoax, appears to be correct at the higher resolutions.

As Bill Sweetman notes, the fact that the the planform appears to be a fairly conventional clipped delta, which, “Has some signature implications, with what looks like an almost unswept trailing edge, because edges scatter forward and backwards.”

The size of the aircraft is still not yet clear, though it appears to be at least as large as the F-22.

At that size, it is likely to be intended either as a strike aircraft, or as an interceptor, or (more likely, it will be expensive, and expensive single taskers are bad) both, rather than the sort of “air dominance fighter” that the F-22, and (probably) the PAK-FA are.

The bottom picture of the abortive MiG 1.44 project shows that the arrangement at the back is very similar to that project, and it should be noted that this project did not have stealth as a priority.

Please note that anything that I say here come from a perspective of rather profound ignorance though.

It’s the Fuzzy Aircraft Photo Home Game

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Note the Insignia


Note the lack of insignia


A ¾ rear view


A frac34; front view


PLAAF (Chinese) Insignia


Soviet Era Insignia


Current Russian Insignia

So, the late Ted Stevens’ “Series of Tubes” is abuzz with what purports to be fuzzy photographs of a Chinese stealth aircraft.

I don’t think that these are raw photos, and that some photo-shopping has been done, most notably the oversize tail insignia, which is most assuredly NOT a PLAAF symbol, as Stephen Trimble observes.

Some other oddities, to my (very) untrained eye:

  • The wing has anhedral, and the canard dihedral, which would be a no-no in stealth design, you would want the surfaces more or less parallel.
  • The same goes for the drooping wing tips, which are absent on the front view but present in the rear view.
  • Pictures 1 and 3 of the aircraft appear to be with the power and the hydraulics unpowered, but there is no gravity caused droop in what are supposed to be axisymmetric thrust vectoring nozzles.  (They pretty much have to be with the small tail size).
  • On the top picture, it appears that the observers in the rear are about 1½ feet taller than the ones around the front of the aircraft.

While I think that it is clear that the Chinese are looking at developing some sort of stealthy fighter or attack aircraft, I really don’t think that it has gotten to the point where a 70 foot long demonstrator of some sort is flying.

It’s possible that the pictures are real, though there appears to be at least a bit of  digital wizardry involved.

Economics Update

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Catching up on the economic number dump, first we have the Federal Reserve’s so-called Beige Book, which shows that growth has continued, but it is very sluggish.

This is reinforced by the fact that consumer confidence fell in October, factory production and capacity utilization fell in September, for the first time in a year, though home builder confidence rose (to a truly pathetic 16 where 50 is neutral), and housing starts rose.

We also have some importing news out of China, with their central bank making a surprise increase in its benchmark rate, and Chinese government published new statistics showing that its growth slowed and inflation edged up.

Certainly, it looks like the Central bank is concerned about inflation, and the statistics, even considering the general unreliability of official government statistics, indicate a problem.

One interesting effect of the rate hike is that it should place additional upward pressure on the Yuan.

Japan Makes Banzai Charge Against Chinese Currency Manipulation

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As a result of Chinese currency manipulation, the Bank or Japan has started selling Yen to keep it from strengthening it too much, which wold kill exports and likely create a trade deficit.

This the first time that this has happened in 6 years, but there is a twist to what the BoJ is doing:

At first glance, the action looks like a something-must-be-done-this-is-something -therefore-this-must-be-done move: a new prime minister and a “bold action” doomed to be proved ineffectual. The FX markets are so enormous (dollar/yen alone trades some $750 billion per day) that it’s hard to believe a single sale of less than $20 billion in yen could even have the short-term effect we saw last night, let alone have any lasting consequences.

But this isn’t just about FX-market intervention. This is also about monetary policy, and that could make a real difference:

………

In other words, the Bank of Japan isn’t simply selling yen, it’s printing yen. (And then selling them.) Given (a) that it’s the central bank and that it can print as many yen as it likes, and (b) that it would actually welcome a bit of inflation, there’s actually a non-negligible chance that this kind of non-sterilized intervention could work.

The term “non-sterilized” means printing money.

The Federal Reserve could do the same thing, and getting the dollar to a reasonable level versus the Chinese Yuan, and some inflation right now would be a good thing.

Why the Chinese Will Continue to Eat Our Lunch

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Because they understand what is going on, and they are willing to do tough things to make sure that things don’t blow up in their faces:

China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said.

Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.

(emphasis mine)

The Chinese understand that the purpose of stress tests is to identify problem institutions, not to reassure markets, so they will thoroughly investigate their banks, and then probably jail senior management at some of the worst run institutions.

It might be painful, but it gets ahead of the events, as opposed to our method, extend and pretend, which means that when future problems occur, the Chinese have better options available to them.

I guess that the leadership of the PRC aren’t worried about being called “Socialists,” because they call themselves socialists.

More Evidence of Chinese Naval Ambitions

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The Chinese Navy is building a 2nd demagnetization facility at Maocao Nong.

This is significant, because while ships may be flashy and show the flag, you need support infrastructure in order to be able to maintain a reasonable level of operations, and this is yet another example of how the Chinese are building their naval power from the ground up.

On a related note, it’s amazing what you can find on Google Earth.

I’ll Take “Unsustainable” for $500, Alex

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China’s Economy?

China is reporting that its economy grew by 11.9% year over year.

This raises two issues:

  • How reliable are these numbers? The PRC tends to encourage lower level bureaucrats to over-report growth, and these numbers tend to filter up the chain.
  • If these numbers are anywhere near reality, what is driving it, and will it be like Wile E. Coyote discovering that he is standing in thin air when something more sustainable hits?

Chinese real estate is clearly with a bubble, with some areas experiencing appreciation in excess of 50% (!) over the past year.

One of the things driving this is the fact that the Yuan is under-valued: It makes foreign assets more expensive, which drives up demand for local investments, like real estate.

If their currency appreciates, and it does appear to be in the cards in the not-too-distant future, we could see money flowing to non-Chinese assets, and their bubble burst.

This could be yet another shoe to drop (there are many out there) in the current downturn, even though we currently appear to have found a bottom.