China Trend Analysis IV: Economic Trends, Foreign Investment

Part II: Foreign Investment


Foreign Investment has given China’s economy much of the monetary and intellectual capital to sustain such high levels of growth. As an integral part of Deng Xiaopeng’s economic reform package, enticing foreign investment through the establishment of SEZs and other policy reforms has played major role in each of the Five-Year plans upon which Chinese economic planners base their work.

Special Economic Zones provide bubbles of relaxed taxation, and fewer bureaucratic hurdles for investors. As of 2008 there were over 2000 SEZs in China, and though they are different in their objectives and thus incentives, they constitute many of the wealthiest areas of mainland China.

In 2005 the total amount of Foreign Direct Investment (FDI) reached over 70 billion USD, and included international companies like Dell, GM, GE, Boeing, and Cargill. As of the first quarter of 2008, the total amount of FDI in China had already eclipsed 35 billion USD, perhaps indicating a continuing growing trend. However, also in 2005, China released a revised edition of its “Encouraged Industry Catalogue,” which may have changed FDI into China.

The Encouraged Industry Catalogue divides various industries into distinct categories to direct the flow of investment: “encouraged,” “restricted,” and “to-be-eliminated.” These categories are relatively self-explanatory in terms of how foreign Many new industries, many of which are pollution heavy, were added to the “to-be-eliminated” category in China’s policy efforts to encourage “Quality-not-Quantity.” Though speculation still abounds as to the long-term effects of this policy move in regards to FDI, as of the publishing of this post, FDI continues to grow in the PRC.

Of the more than 50 billion USD that have flowed into the PRC in the first half of 2008, a majority source of this income has been from established companies from the Forbes 500 list. There is much speculation concerning this influx of monies in connection with a revaluation of the Chinese Yuan, an move that could have very long term impacts on the Chinese economy.

Another remarkable trend concerning Foreign Direct Investment is also growing – investment by the People’s Republic of China in other developing nations across the globe. It was reported by the People’s Daily in 2007 that the total amount of Chinese Foreign Investment in other countries had exceeded 76 Billion USD in total. It also marked the total amount of outgoing FDI as over $16 billion in 2006 alone, having grown by nearly 35 % from 2005. This money is spread out to some 160 nations, but there is particular investment in Africa, South America, and other parts of Asia.

Investment by China is being spurred by a number of factors, including the continued growth in demand for natural resources, concerns about over-population, and profiteering by China’s industrial leaders. As of 2006, the PRC was investing an approximate $8 billion USD in Latin America. President Hu Jintao publicly announced China’s plan to invest over $100 billion in the region over the next decade, including $20 in Argentina’s infrastructure.

China’s interest in Africa recently garnered the attention of the New York Times with this article. The growing amount of Chinese workers, factories, and investments in Africa have gained the attention of a number of western powers, partly due to the scope of the PRC’s strategy, partly from the practices that have been employed. Some analysts have proposed that China plans to relocate over 300 million people to the continent, and already China utilizes over 70% of Africa’s available resources. The Chinese are being criticized for arms sales, supporting corrupted regimes, and the destruction of local economies.

China Trend Analysis IV: Economic Trends 1970-2008

Part I: The Growth of China’s Economy 1978-2008

The Manoa School of Futures Studies like to look at long term trends, with 30 years being about the shortest encouraged length to begin a study. The reason for this is the importance that 30 years can have on something the scale of, for example, the global population. In 1978, China was finally able to begin instituting the economic reforms that Deng Xiaopang and top Beijing leaders had been calling for. The encouragement of market economics, and policy reforms that encouraged increases in personal income and consumption began. Thirty years later, China is home to the world’s 2nd largest economy, and has a growing influence in global politics and power.

In the course of 2-3 generations China has radically changed not just its own economy, but the way the entire globe must think about the nation and its policies.

The decade of the eighties was highlighted by a number of economic reforms aimed at providing incentive for people to become more productive. Agricultural reforms, the lifting of market pricing restrictions, and the institution of the concept of private property were the first steps. Paralleling this were policy pushes to encourage foreign investment; not just in money but in managerial and structural ideas that could be implemented to encourage long term economic growth. The highly touted Special Economic Zones were initiated through policy, and China slowly enticed foreign investment to its shores. Strictly by the numbers, China’s economy (measured by GDP) increased from 1980 to 1990 approximately ten fold, from approximately 200 billion RMB per year, to nearly 2000 RMB. What is more amazing is the story of the 15 years following that.

From 1990 to 2005 China’s economy again grew ten-fold, and now in 2008 China has a GDP of over 19 trillion RMB, or about 2.75 trillion USD ( 7RMB to 1USD exchange rate)—the world’s second largest economy.

What happened during the 1990’s and first part of the double-0’s? A number of factors are linked to China’s surge in GDP including the proliferation of the SEZ system, continued reform of the State Owned Enterprises (SOEs), and monetary policies.

The initial round of SEZ creation included 14 cities, and 3 regions, most of which were coastal. The 1990’s saw that number rise to over 2000 special economic zones, each one tailored in policy and governance to encourage foreign direct investment through a more relaxed bureaucracy, tax incentives, and other motivators. The long-term nature of much of this investment later buffered China from the Asian Market Crisis. A strong and non-fluid currency also helped China build its reputation as a mainstay in regional and global economics.

Additional policy was passed to address the under performance of many SOE’s that were reporting losses during the period. Increased privatization has led to increased competition, more streamlined operations, and a growing wealth of industrial information used in the practice of manufacture and business. The continued privatization has also led to rises in unemployment that are in need of address.

The Chinese Yuan, while currently the focus of a number of debates, is another key factor in the economic boom of China during the 1990’s. By aligning itself to the powerful US dollar during this time period, the Chinese Yuan was able to grow in value as the US economy grew, and weather the Asian Financial Crisis with little impact. The supply of Yuan is tightly controlled by the nation’s economic planning committee; an economic control heavily used by highly centralized governance. Another trend lies in China’s consistent use of this economic control to curb inflation, and direct development.

2005-current

Since the passing of the 11th Five Year Plan by the Chinese Communist Party in 2005, the stated direction of China’s national governance has been towards a “harmonious society.” This term, despite its vagueness, has been allocated by a number of white-papers issued by different branches of the central government, including the Central Military Committee.

In terms of economic growth, the national economy has reported growth of over 10 percent annually since 2003, reporting growth of 11.9% in 2007. Many analysts have differing opinions on the consequences of such a rate of expansion. The official response to such prolonged and rapid development has been a call by the government to limit this growth soon. Growing inflation, per-capita income disparity, and energy concerns have spurred this decision.

China Trend Analysis IV: Economic Trends Intro

China's economy has been closely watched for the past 35 years. The showcase of the "Asia Miracle," China has seen change in the past century that is difficult to compare to anything. The economic trends that have fueled this transition have been well documented and researched by professional economists, analysts, and academics in more depth than this study or the author's training can adequately pay homage to. However, to speak of China's or even the world's futures visions at this point requires that mention be made of the impact of Chinese economic trends, policies, and movements.

In its bid to become the epitome of world superpowers, China has quietly transformed its economy from a largely agriculturally based system to a highly-powered market system in a matter of decades. By enlisting the 1.3 billion members of its population, China is in the midst of demonstrating to the world what such masses of humanity can accomplish in a short matter of time. Both good, and bad.

This trend analysis will spend a short amount of time analyzing the current trends in the Chinese economy. From the streamlining of industry, to the impact of SEZs, the drying up of foreign investment and the theorized boom in e-industry, the current state of Chinese economics is under more scrutiny than ever. After the Olympic games of 2008, and the global exposure to this nation, increased awareness and intrigue are sure to follow.

China Trend Analysis III: Societal Trends

Part III: Social Unrest


A RAND testimony published in 2005 reported that China had seen a dramatic rise in the number of “mass incidents” from 8,700 in 1993 to over 86,000 in 2005. A ten-fold rise in 12 years outpaces the economic boom, and further research conducted at the University of Chicago has separated these incidents from being strictly economic in nature.

Additional factors thought to be attributing to China’s rise in civil unrest include the burgeoning legal system, environmental issues, and land management rights. The use of litigation and public courts is a noteworthy trend in China’s evolving system of governance. As the nation’s legal system garners strength and legitimacy amongst the population, grievances will have a forum capable of hearing and taking action. This has an empowering effect on the mindset of the greater public, and could be an underlying cause for rising demonstrations.


The social costs of lackluster environmental policy are also beginning to be realized in the form of organized dissent. As communities mobilize to effect planned development projects around the country, the cry out for issues such as dwindling potable water, clean-air, and toxicity levels from industrial operations. This kind of informed dissent may be linked to increased awareness of environmental impact issues, and online information sources.

Closely related to this are groups of people voicing their frustration over the lack of land management rights that is afforded to most Chinese citizens. As land is generally held on 3 year lease agreements, few Chinese have ownership and rights over the land their abodes are constructed on. Rising affluence in many sectors of Chinese society has resulted in the desire to own land and control its future. Long seen as a source of influenced decision making by regional governance, Land management and private property rights has also become a hot point.

There are a number of factors adding to the reported increasing levels of social unrest in the People’s Republic of China. However, it is important to take these reports in the proper scope. While the number of public protests may be high, China’s population is huge and the official definition of a public protest can be as small as 3 people gathered. Also, while issues like the growing wealth gap continue to be hotly debated, it is important to note that long term effects of China’s economic development plan have yet to play out, and as many as 50 million people are pulled out of poverty every year in the PRC. There are very big changes happening in China in a very short amount of time, and while this change may not be without fault, with much change comes peripheral unease.

China Trend Analysis III: Societal Trends in Demographics

To speak about China as a single society is difficult to do. Numbers, no matter how convincing, do not tell the tales that live here, the people do, and by and large the stories are truer than not. As the writing of 1.3 billion stories would probably take a workforce of 2.6 billion, it will likely be the case that these stories will not gain widespread circulation, and the living journey of China’s societal development will remain in the chatter at restaurants, shopping malls, and IM boards.

Therefore we will employ statistics, as they give strength to the notion of possibility, rise to urban legends, and fodder for our coming analyses. With this many people, numerous interwoven communities create the landscape of society we call China. By the numbers, we will strive to catch a glimpse of China’s New Society.

Part I: Urbanization

In early 2008, the official number of people living in China’s massive metropolitan centers eclipsed the rural population. Few analysts believe that this will reverse for many years to come, and not without a major impetus for systematic change. The Mckinsey & Company released an in-depth review of China’s urbanization trends as extrapolated through the year 2030. This report asserts that the urban population of China will eclipse 1 billion in this time frame, accounting for two thirds of China’s total estimated population at the time. Much of this influx will be migrant workers, wandering in from the country side in search of better employment and “the good life.”


Interesting information on Urbanization can be found at the International Political Economy Zone, and at UN-HABITAT – a joint research project between Habitat for Humanity and the United Nations. UN-HABITAT studies various human settlement and migration patterns, with forward looking projections for areas around the globe.

The increasing urbanization in China presents pressures on other social factors compounding possible dilemmas.

Part II: The Long-Term Effects of China’s “One Child Policy”


Beginning in 1979 the People’s Republic of China instated the national “One Child Policy” in an effort to control its booming population. China’s population, having grown from 500 million to over 1.3 billion people in the last 50 years, presents the nation’s greatest strength and possible weakness.

The “One Child Policy” has had a debated effect in the population curbing, as stiff fines and repealed social welfare programs are in place as punishment. Many of China’s poorest populations have adhered to the policy – either forgoing multiple children, putting children up for adoption, or resorting to more grim options. However, China’s wealthy populations, to whom monetary punishment is not an insurmountable obstacle, have not adhered to the policy. Additionally, numerous loopholes exist within the policy allowing Chinese residents with special minority status or living abroad to circumvent the “one child” restriction.

The “One Child Policy” has also been linked to other social trends occurring in the PRC. Firstly, the proportion of China’s growing elderly population in regards to its shrinking working age population. Secondly, newer generations of Chinese, many of whom are supported fully by parents and often two sets of grandparents until well after college, stand accused of having low work ethic, and little motivation in nation building. Thirdly, the growing disproportion of China’s male and female populations. Though other effects surely exist, and are potentially as important to China’s future, these three issues will be of main import in discussing the Images of the Future at the Beijing Games.

The first issue is bolstered by the following information: China’s aging and elderly population is currently growing at well over 5 million people per year, and has a total number of approximately 160 million across the nation. A majority of the elderly population (approximately 85+ million people) live in rural areas and are far from the reach of the central government’s social welfare programs. The rate of aging in the population is currently at a peak that is expected to last approximately through 2051. Compounding this problem is the low birth rate in much of the nation. With an annual average of only 13 births per 1000 people, the current population replacement rate is negative. This essentially means that as China’s population continues to get older, there will be a decreasing number of people available to the work force to support growing needs in medical care, and other social welfare programs.

The Second Issue is a highly debated topic that may come to epitomize the idea of generation gap in the years to come. In the generations born since 1979, there has been an increasing number of single children supported by 6 working adults...sometimes more. Many are questioning what the effects of such a support system are in terms of the expectations of these generations. Some believe that such a system has been beneficial to the maturing generations post-1979, allowing educational opportunities free of financial stress, for millions of Chinese. Others expose a darker side of such a system, fearing excessive doting, and spoiling have caused a schism in the societal concept of work value. While older generations were content to earn livable wages with minimal accumulation of material wealth, newer generations may exude an insatiable hunger for material goods, and a standard of living that far exceeds the expectations of the former. This results in a clash of priorities for the younger members of the workforce, and the increasing elderly population noted above. These generational conflicts have yet to play themselves out in full, however, some analysts claim that hard times are ahead for one or both of the generations.

The Third Issue to keep in mind is a growing gap between the numbers of male and female members of the population. Some analysts say that by the year 2020, there will be approximately 1 female capable of child bearing for every 16 males. Due to the standing cultural value placed on male heirs, a disproportionate number of female fetuses have been aborted because of the “One Child Policy.” This results in both an increased “value” of women within society, and an excess of eligible bachelors with the desire for a family. Add to this a trend that is currently being tracked by many social analysts, the rising number of double-income-no-kid couples, and further change is likely to develop in China’s rapidly changing social fabric.

Further articles related to these numbers and trends can be found here:

People’s Daily Online : China’s Elderly population reaches 143 million (2006)
RIETI : China’s Challenge: Employment and Unemployment
China Daily: China faces elderly dilemma (2004)
, and elsewhere online.

China Trend Analysis II : 11 Categories of Advanced Technology, part II

VI. The final six technologies of the USNSB categorization

The last six categories of Advanced Technologies are high on China’s priority list, and some analysts believe them to be integrated with emphasis into the next Five-year plan of the PRC. Listed below are the category titles, and any trends of note, or anomaly events of interest. Again, we highly encourage readers of the blog to conduct further research, and post comments as you feel necessary.


1) Biotechnology
Biotechnology in the People’s Republic of China is well kept secret, and an expensive one to research on a short time scale. Currently, market reports and analytical data from various groups costs anywhere from $600 - $5000 (USD). Perhaps a paltry sum for most investors looking to get in at China’s potential explosive power in Biotech, but a rather steep set of figures for this poor graduate students. Anyone looking to donate a set of these materials will be given due mention in the pages to follow. And deep gratitude. And invitations to my annual Dubai getaway starting ten years from now ☺.




2) Life Sciences Technology
Development of the life sciences technologies and research in the PRC runs roughly parallel to that of Biotech. Both industries have grown quietly during the past twenty years, but due to low cost of startup, many established global companies are beginning to build life sciences R&D facilities in China, while domestic startups dot the market scene.
The highly touted return of western-trained scientists has become an increasingly hot topic, as the boom in Chinese scientific papers and claims reaches the academic and private research audience. Though a majority of findings seem to be accurate, and well documented, a growing number of faulty research claims, and questionable products has entered the marketplace.
However, the facilities being constructed in China coupled with another series of policy shifts and the accompanying budgets could usher in China’s leadership of global Life Sciences and Biotech industries.

3) Optoelectronics
China’s Optoelectronic Industry has maintained a growth rate of approximately 20 percent over the past 6 years, mainly driven by the sales of displays for computers, mobile technologies, and the automotive industry.
As a producer, and consumer, the PRC continues to pursue better manufacturing techniques, and innovative uses for optoelectronics as part of its 863 programs.

4) Flexible Manufacturing
Due to China’s role as global producer, flexible manufacturing systems and techniques are of increasing importance. For it to maintain its position, and the economic growth that has enabled its rise in wealth and influence, it must continue to be a viable source of the latest manufacturing modes. As rumors of a decline in foreign investment circulate, China is importing large amounts of intellectual property concerning the production of global and local goods.
Flexible manufacturing allows for multiple components to be produced from a single manufacturing line, and beyond that multiple products can issue from a single factory. These products include: sheet metals, circuit boards, plastics, and a host of other necessary components for our everyday lives. With flexible manufacturing, factories can shift identities faster, and in accord with shifting market demands.


5) Weapons
China is one of the top three weapons suppliers for the United States, and considering the United States defense budget this reflects a large revenue stream for the PRC. The state of the weapons industry, and China’s strategic technological push in defense, makes this study of comparable value. While more market and industry based reports may adhere to numeric trends, the relative secrecy surrounding such figures, makes most information suspect concerning how much is being produced, and where that product is going.

Beijing’s policies concerning defense development were fairly well outlined in the first trend analysis of July, but a brief recap of the various technological advances will follow. This report will include some novelty, and various speculative points of view.

Anti-Satellite testing in January of 2007 was successful and legal according to China’s “space” status at that time. China is equipped with Intercontinental Ballistic Missiles, that can be armed with nuclear warheads. It is highly regarded that wars of information and asymmetrical attack may be the future of warfare – leading to the idea that Chinese defense department hackers have targeted U.S. strategic grids and communications networks. Due to the relatively advanced state of the biotechnology industry and research in China, it is taken as evident that a chemical weapons R&D department exists, and perhaps has an inventory.

6) Nuclear Technology
China purchases Nuclear Technology from Russia, and other nuclear capable nations. Additional to weapons capabilities, nuclear technologies are being developed for use in China’s proposed nuclear power program. This program looks to build upwards of 30 nuclear power plants by the year 2020. Though these plants would be nearly irrelevant in terms of China’s quickly growing national energy consumption, but they are likely to be built. These nuclear power plants will be based on safer pellet technologies.

China Trend Analysis II : 11 Categories of Advanced Technology, part I

The U.S. National Board of Science categorizes advanced technologies into 11 distinct fields for organizing scientific inquiry, advancements, and market research. We list and discuss each of these, and examine China’s vested interest in them. China is among the top three importers of U.S. advanced technologies in 5 of these categories, and makes significant purchases in the remaining 6. We will discuss them according to this order.


I. Aerospace

China’s aerospace industry is in the midst of a growth trend, readying to open its AVIC III (Aviation Industry of China) upon the success of the AVIC I and II installments. These installments are the direct result of the restructuring of the government owned enterprises that made up China’s aerospace design and manufacturing pre-1999. The model driving China’s organizational change focuses on development for defense applications, with advances then being adopted and implemented into commercial products.

Developing a series of aircraft with civilian and military applications, the AVIC installations are working on “homegrown” designs for production and use inside China, and possible sales to other nations. While as high as 50% of the necessary components for their designs are imported, these designs are being produced to meet U.S. Aviation standards, perhaps the highest mark to date.

Many analysts believe that China’s Aerospace Industry is just now starting to reap the benefits of the restructure, and will continue to grow over the coming years. Aiding this growth will be the high levels of interest in Space Technologies including satellite launch, participation in national and international manned-space ventures, and defense and communication systems.
This trend is perhaps the most poignant in our analysis of China’s quickly changing technological capabilities in aerospace. The rapidly advancing state of China’s Space program is manifested in satellite technology, manned and un-manned space missions, cutting edge launch capabilities, and a lunar research group.

China’s increasing inventory of operational satellites ranges from meteorological research, to high resolution imagery, to increasingly accurate global positioning capabilities. China currently has 67 payloads in orbit, with 10 additional satellites to join the skies in 2008. This is up from 9 satellites in orbit as of 2003. Their navigation and tracking system, Beidou, is undergoing refinements to give it GPS like accuracy. They also have deployed a SAR radar system, and plan on launching an 8-satellite strong array in the future.

Their launch capabilities are undergoing major transformations as well. The standing Long March series of rockets is soon to be shelved in lieu of the upcoming (but yet unnamed) launch system consisting of 120-ton and 50-ton engines that use non-toxic nd non-pollutant fuels. These new rockets will help China pursue its lunar mission, to deploy a survey robot to the moons survey. Additionally, these rockets will allow the PRC to participate in the International Space Station, and conduct independent space research. China’s currently has signed treaties of cooperation with 15 nations, and the European Union, pledging peaceful development and fair use claims to space.

China, in some analysts’ minds, has been very public about the commercial and international applications of its booming space industry, while continually downplaying the technologies military use. This has garnered a variety of responses, most of which cast a positive light on the PRC’s continuing space efforts.


II. Advanced materials


Generally regarded as materials that enhance or make possible the use of other advanced technologies, the NSB gives optical fiber cable, semiconductor materials, and videodisks as examples of this category. We must also consider newly developed polymers for aerospace, China’s booming architecture and automotive industries, and rapidly advancing Information Technology market and industry.

The PRC has seen continuing and significant growth in all major advanced materials markets, including non-metal materials (polymers and other advanced chemicals), advanced metals and alloys, and nano-level developed materials. Project 863 is government initiated program focused on the development of all technologies that wil support the industrial and economic strength of China. The development of “indigenous design” advanced materials and manufacturing techniques is one critical component of project 863.

Research done by Richard Applebaum analyzes China’s advances in the nano-sciences fields, many of which have end products or applications in the advanced materials sector. A power point of this research, as prepared for a Forbes live webcast is presented here. Some regard the nano-sciences as the next transitional technology breakthrough, whose impact can be far reaching and is currently unpredictable.

Further information available:
Ministry of Science and Technology (PRC)




III. Electronics

China’s current Five-Year plan is highly focused on advancing the state of all sciences and technologies, and especially those that would bolster China’s industrial production capacity. The PRC is one of the world’s largest investors in R&D, as it continues to push its agenda of “informatization” to remain competitive in the global production of electronics. This output includes throngs of end-user products, and a growing number of goods for industrial or advanced IT applications.

As China continues to be one of the world’s largest suppliers of electronic hardware, and consuming a majority of U.S. electronic exports, it seems the state of the art of electronic production is settling in China. This trend continues to have an impact on the social fabric of China, as well as setting the standards for China’s vision of success. From integrated circuits to capacitors, “electronics” continue to be in high demand for the PRC.

Again, by developing advanced manufacturing process, China is pushing to develop its own designs of electronic exports necessary in the development of end user products. This push comes in concert with China’s efforts to become a more sustainable and eco friendly producer—a challenge to be discussed later.



IV. Information and Communications Technologies

Again we reiterate the push of China towards “informatization” in its military, industry, and greater social fabric. As each five-year plan unfurls within the PRC, China’s momentum becomes more evident. A new strategy or course of development denotes a massive shift in government financial support, human resources, and capital from other sources.

Therefore, China’s growth as an importer of ICT technologies, and its continued advance as an innovation center for said technologies comes as no surprise in combination with China’s current development model. However, China currently supplies over 40% of all U.S. imports in this same field, and has grown steadily in the manufacture of goods in this category.

The PRC now has more active online internet users than any other nation with approximately 210 million or more. This puts China’s Online community above all but 4 of the world’s nations in total population, with an amazing growth rate. Over the past 5 years China’s internet population has grown from approximately 35 million users—an increase of about 700%. Of increasing interest is the nearly 60 million subscribers to wireless internet connectivity through a mobile provider.



V. Software

Computer Software is an increasingly important product to all high-tech nations and societies, and china again has continued to surge in its production and export in this category. As of the end of June 2008, PRC software companies have become the fourth largest producer of software in the world, and a majority of these companies are “homegrown.”

In management software, an essential to the growing market economy of China, almost 60 of the top 100 computer software firms are Chinese owned and operated. The biggest sales for these homegrown companies happen within China, but a growing market does exist for exported software.

As in other technology and industry sectors, China’s growing stake in the future developments of these technologies allows the engineers, and policy makers of the PRC to hold more sway in international meetings aimed at standardization. This is made poignant by the Chinese launch of many standards, codecs, and formats that are homegrown and developed.

With the rising popularity of wireless and mobile communications, and its heavy usage in Asia, this standards will play an increasingly important role in the future directions that global software companies must take. As mobile applications of technology become more prevalent and diverse in function, the nations building the most popular software will have an increasing sphere of influence in the direction setting of the technologies standards for future developers.

China Trend Analysis II : Technology Blooms in the PRC

Introduction


“In addition to the broad array of technology products sold to Japan, the latest data show that China is among the top three customers in aerospace, advanced materials, software, electronics, and information and communications technologies.”
– National Science Board, Science and Engineering Indicators, 2008


According to the National Science Board of the United States of America, the five areas mentioned above represent half of the ten total categories assigned by this organization to monitor advances in markets, developments, and innovation in “technology.” China accounted for almost 10% of all U.S. exports in advanced technologies, the highest of any nation in the world.

Technology is one of the words that will makes everyone’s life easier, when it falls out of popular use. Deciding what technology is and is not is a rapidly changing, and debatable topic. Furthermore, the unknown uncertainty revolving around many technological deployments continue to make scientific advancement a heated topic of debate. Advanced technologies are touted as having the ability to change the fabric of the world we inhabit at any time. Affecting our personal, national and global societies, this catchall term is still very important to discussion and understanding of our world. And China seems to be building, buying, and bolstering “technology” as fast as it possibly can.

We will examine China’s consumption, development, and usage of advanced technologies based on the 11 categories put forth by the U.S. National Science Board. We will also examine topics distinctly related to technological advancements, and China effect on them, namely, global standards and industrial Intellectual Property.

China Military Trends: Bulletpoint Review

1 - The People's Liberation Army (PLA) is in the midst of a streamlining and modernization of its military forces.
2 - The People's Republic of China (PRC) officially employs a national defense policy based on peaceful cooperation, and mutual development.
3 - Current PLA policy is aimed at "informationization" of each wing of its armed forces. This includes "cyber-warfare" tactics.
4 - PRC is promoting development in Space technologies, including defense capabilities. Its test in 2007 display its ability to eliminate low-orbit satellites.
5 - PRC played a leading role in the formation of the Shanghai Cooperative Organization (SCO), now including 7 states with full membership, and an additional 5 observer states.
6 - U.S. views ties between economic stability and military development in the PRC as potentially limiting and dangerous in the future.
7 - Global view of PLA activity is a quiet topic, though some of PRC's neighboring nations are in territorial disputes with China.

China Trend Analysis I : Military Development in the People’s Republic of China (PRC)

Part II: China’s official policy and global views
China’s military, also known as the People’s Liberation Army, does not fall under the direct control of the state. Rather, it represents the armaments and personnel of the Communist Party, and reports to the CPC’s Central Military Commission (CMC). Though a state Ministry of Defense does exist within the national government, it has no real power in controlling the PLA, its deployment, or its strategic development.
Official military policy and strategies issued by the Chinese government are therefore extensions of the communist regime and the ideals and philosophies born therein. It’s stated purpose in it last official white paper release concerning military development is surmised here:

“At the new stage in the new century, we will take the scientific development outlook as an important guiding principle for the building of national defense and military affairs, vigorously advance the revolution in military affairs with Chinese features, and strive to realize an all-round, coordinated and sustainable development in our country's national defense and military capabilities.” – China National Defense in 2006

This quotation is directly followed by an outline of China’s push to update its military into a modern force. A briefly summary of what this entails is below.

I. Ground Forces
The PLA’s ground forces currently stand at approximately 2.3 million members. Estimates state an additional million soldiers could be called in from reserves. Policy has raised the levels of training intensity, modern technological equipment, and flexibility of organization in the PLA, while concurrently lowering their membership considerably. Their stated intension is to make “progress towards the goal of being proper in size, optimal in structure, streamlined in organization, swift and flexible in command, and powerful in fighting capacity.”


II. Air Force
China’s Air Force is also modernizing at a rapid rate through cooperation with foreign nations, the purchasing of outside technologies, and most importantly the growth of “indigenous” innovation. They are currently outfitting many of the dated components of their air fleet as pilotless reconnaissance and combat vehicles. Also, a number of fighter-bombers and other multi-functional aircraft bastion China’s aviation inventory, including the indigenously developed Jian-10 fighter.


III. Naval Power
As China’ become more concerned with the security of their shipping lanes, they continue to modernize their Naval armaments with rapidity. Some investment has come in the form of procurement and study of Russian carrier and submarine technologies. However, China’ has also been very successful in developing their own craft including the Shang-, Jin-, Han-, Xia-, Song-, and Yuan- submarine class. These represent both diesel-electric and nuclear powered vessels, some of which have the capability of carrying parts of China’s nuclear arsenal. They have also developed many technology upgrades for their surface fleet including improved scanning and targeting from a distance, and anti-air warfare capabilities.


IV. “Informationization”
Secrecy abounds over the PLA’s push to “informationize” the entirety of their armed forces. However, this increase in information technology capability, has also opened the door to defensive strategies aimed at the communications and logistical capabilities of opposing forces. Termed an ”assassins mace” in some PLA journals, these strategies are aimed at the networks of information, both accessible and alterable, from a computer. This blanket term is also used time and again throughout the nation’s 2006 statement on military affairs in regards to the upgrading of technologies deemed necessary in winning a war between computers.


V. Other
China’s official strategy also outlines plans for reform in the civil service aspect fo their armed forces. The continual development of the Judicial System will be focused on the refinement and addition of new laws. These laws are aimed at making “… a military legal system… take shape which covers multiple aspects, and is coherent, scientific, closely knit and well-designed.”
Additionally, changes within the Institutionalized Education structure of the PLA have required the closing of some schools, and the bolstering of other more successful programs. The PLA operates 67 institutes of higher education, 41 of which are authorized to award doctorate degrees, and 61 of which award masters degrees.
Technologically, China has been heavily active in Space systems development. Plans for additional manned space operations, continued collaborations with the international space community, and development of a fully capable satellite deployment operation lead China’s priorities in this sector. Their ASAT test in January of 2007 demonstrated that they are actively pursuing defenses against surveillance satellites already in orbit.

Global View Brief

Overall, the PRC proclaims that it is in pursuit of a peaceful and cooperative development economically, socially, and globally. Their military stratagem are based on this theory, and the CMC views all modernization efforts as appropriate measures in bolstering national security and defense against outside aggressors.


The United Nations, European Union, and other international organizations are currently quiet about China’s growing military strength. While individual neighbor states have territorial disputes with the PRC, there are no consolidated forces standing in opposition to China’s military moves or policies.


China currently holds a permanent set on the United Nations Security Council (currently the only Asian representative on the panel), and with that seat veto power. Additionally, the Shanghai Cooperation Organization (SCO), a partnership between China, Russia, Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan, is playing an increasingly significant role in the security of the Central Asian Region, and thusly the global oil trade.


Related Text:
China's National Defense 2006 (official document of PRC)

China Trend Analysis I : Military Development in the People’s Republic of China (PRC)

Part I: Popular United States views of China’s Military



As the largest military force in the modern world, the United States keeps a wary eye on the quickly developing military & defense agenda of the PRC. Thus, the first part of our investigation into the apparent trends in China’s growing military power will rely heavily on U.S.-led studies into the pace, alignment, and focus of said growth. This article will present a summary of a number of opinions and forecasts as drawn from the U.S. Congress, the RAND Corporation, U.S. National Security Agency documents, among others.


China’s military development over the past 15 years has been as rapid and determined as its economic growth. In fact, the expanded military budget of the PRC closely follows the same trend curve as the nation’s rising GDP index. Though many of the actual figures surrounding defense spending in the PRC are not realized, the data under analysis is based on inferred costs and known purchases by the PRC. From the early 1990’s onwards, the PRC has recorded an annual overall economic growth of approximately 10%. During the same years, military spending has also increased by 10% per year, and stands at around $USD 140 billion for the year of 2008.


These distinctly paralleled figures lead to a number of questions concerning the course that China will follow during in the coming years. Firstly, what will the response be in defensive budgeting due to any abnormalities in economic growth by the PRC? Secondly, to what extent is the military power being amassed by the PRC intended to protect its economic growth trend, and to what means will that protection extend itself? Thirdly, to what degrees is the economic growth contingent on the sphere of military influence the PRC is able to exert?


In answer to the first question, expert opinion in the United States of America seems to revolve around the idea that any divergences in economic growth will result in system wide changes, inclusive of military budgeting. Military Power of the People’s Republic of China, an analysis prepared by the Office of the Secretary of Defense for the U.S. Congress, states that other economic pressures may play a role in the continued funding for China’s military development. These factors include aging population trends, urbanization of the populous, health-care costs and social welfare programs, and under performing bank loans.


This publication also begins to address the PRC military development strategies in regards to resource allocation. It further offers analysis of official policy concerning the deployment and use of military strength to secure China’s national interests. As the world’s largest consumer of grain, coal, steel, and meat, and second only to the United States in oil consumption, China has on of the most robust and diverse economies of the world. Secure shipping lanes, access to natural resources, and peaceful relations with neighboring nations are among the top priorities to military policy makers. These factors have guided the development of strategic bases across from Taiwan, the building of a modern naval power to police the Straits of Malacca and South China Sea, and continual territorial negotiations with India, Bhutan, and other nations.


In address to the last of these questions, U.S. analysts generally conclude that China is still a growing military power, though a quickly advancing one. As a result of this status, it is generally perceived that China’s military has yet to reach the capacity necessary to carry out long-term military engagements from a distance. However, as China fortifies its ability to protect its territorial claims, and secure its geographic position against outside influence, it has recently begun embarking on a number of technological acquisitions enabling long range engagements. Its push to “informatize” its military policy includes strategies aimed at causing disjunction in the logistics, communications, and other vital networks to opposing forces.

To better understand these assessments please refer to the
Military Power of the People’s Republic of China 2008,
Forecasting China’s Military Spending through 2025, and
Chinese Responses to U.S. Military Transformation and Implications for the Department of Defense.

July -- Current Trends in China

In studying the PRC, analysis will be directed in five distinct categories: Military, Socio-Political, Economic, Technological, and Environmental. These categories are exceedingly intertwined due to a lack of statistical data from the PRC, the disparity in opinion concerning these trends, and the very nature of these root categories. Therefore, trends analysis stated herein should also be held under scrutiny and each could be highly effected by changes in the others.

Broad level analysis such as offered by this blog, should be considered further contextualization for the "Images of the Future" analysis conducted in August from the Olympic venue.