21 May 2014

China's Big Bargaining Chip Against Gazprom

May. 18 2014 17:58

When President Vladimir Putin arrives in China on Tuesday, he will be in a hard bargaining position, given ongoing tension on Russia's western front.

Diplomatic exchanges between Russia and China have been increasing in substance over the past several years. Already pundits are speculating about how likely it is that a pricing agreement will be reached on the sidelines of the upcoming Conference on Interaction and Confidence Building Measures in Asia Summit in Shanghai. China's heavily regulated domestic market means that Russia's making even a modest profit from natural gas export will be difficult.

China's energy demand is growing substantially and will continue to do so. Natural gas is a core growth component of its energy mix, although coal will likely remain dominant for the next 10 years. Currently coal is used for 80 percent of China's electricity and 92 percent of its heating.

Up until now, the predominant sticking point has been the low prices that make even Russian gas uneconomical to transport to China for sale. Interestingly, conflicts in Ukraine come at a very convenient time for China, which will make it possible for China to exact a more favorable energy deal.

Taking into account that Russian natural gas export only brings 30 percent of the overall oil and gas revenues to the federal budget, these contracts are ultimately more political in nature than economic. At the same time, however, it is unlikely that Gazprom will operate at a loss given increasing extraction and development costs coupled with increased investment programs.

But China may have an opportunity to leverage its geopolitical position to provide an incentive for Russia. The markets in the Asia-Pacific region are ripe for a new major exporter. This struggle for market share is likely to evolve around dual poles of Russia and Australia and their respective energy companies' presence in the region. Russia has a particularly advantageous position, given that traditional allies in the region have not tapped their own reserves.

There is a recognizable potential for China to utilize this market opening in negotiations with Russia to help reduce the price of imported natural gas. This is possible through China's ability to help liquefy Russian natural gas for export to southeast Asia. China is a huge market for Russia's natural gas, but it is not likely to be a profitable one.

Joe Parson is a freelance international energy relations analyst and founder of AnalyticalForecasting.com

Is China the Fastest Rising Power in History?


BY DANIEL M. KLIMAN ON MAY 18, 2014

China is rising; but how far, and how fast? After the release of projections based on new World Bank data showing that China will soon overtake the United States as the world’s largest national economy, a debate has quickly ensued, with some China-watchers dismissing the new figures as an “accounting exercise” and others calling the revised data a “wake-up call.” But the hue and cry obscures a more fundamental question: whether the scale and speed of China’s ascendance is truly unique, or whether it resembles the emergence of earlier powers. China, it turns out, scores moderately on the first metric, and very highly on the second.

Although new powers have emerged for millennia — think Athens after the Greek victory over Persia in 479 B.C. and Rome in 264 B.C. at the start of its wars with Carthage — extensive data measuring the scale and speed of a nation’s rise only extend from the mid-nineteenth century to the present. During this period, five states have emerged as global powers:
  • The United States, circa 1870: Having recovered from a devastating civil war, it entered a period of rapid industrial growth and overseas expansion.
  • Germany, circa 1870: Otto von Bismarck defeated France and established a unified nation.
  • The Soviet Union, circa 1945: The USSR grew into a superpower in the aftermath of World War II.
  • Japan, circa 1960: A high-growth era dawned which took Japan to the commanding heights of the global economy.
  • China, circa 1982: Its rise began after the ruling Communist Party completed its sixth five-year plan, a document the party still uses to help guide the economy, inaugurating a new era of economic reform and opening to foreign trade.

Of course, no country’s ascent had a single, undisputed starting point. But cutoffs are necessary to gauge a rise or a fall, and the above inflection points are apt candidates. Here’s how China’s shares of global GDP, trade, and military spending compare to that of the other four powers, 30 years into their respective ascents (click any image below to enlarge):

ShotsFired in U.S.-China Cyberwar

05.19.14

The Justice Department’s indictment of Chinese military officers for cyber espionage Monday was billed as a law enforcement matter, but the high-profile rollout shows the Obama administration wanted to admonish China publicly.

The Justice Department may not have meant to start another battle with China at the worst possible time, but that’s what it has done. Just as U.S.-China relations have hit a low point, for the first time ever the United States is charging Chinese government officials with conducting cyber espionage against private American companies.

Flanked by federal prosecutors and a member of the FBI at a podium Monday, U.S. Attorney General Eric Holder announced the indictment of five officers in the Chinese People’s Liberation Army for “serious cyber security breaches against six American victim entities.” The companies—Westinghouse, Alcoa, U.S. Steel Corp., the United Steel Workers Union, Allegheny Technologies, and SolarWorld—were targeted for “no other reason than to advantage state owned companies and other business interests in China,” he said.

In response to the Chinese government’s public challenge to the U.S. “to provide hard evidence of their hacking that could stands up in court,” Assistant Attorney General John Carlin named the clandestine military hacker outfit accused of masterminding the spying operation, Unit 61398. Carlin, who works in the Justice Department’s national security division, then made a statement that seemed to be a challenge of its own to the Chinese: “For the first time,” he said, “we are exposing the faces and names behind the keyboards used in Shanghai.”

The Chinese government reacted swiftly, calling the charges “extremely absurd” and canceling the U.S.-China working group on cyber security that was begun in the context of the Strategic and Economic Dialogue, co-run by the State and Treasury Departments. State Department spokeswoman Jen Psaki said she hoped the next meeting of the S&ED would proceed as planned in July but that there was no certainty.

A Vote for Ukrainian Freedom

By YULIA V. TYMOSHENKOMAY 18, 2014

KIEV, Ukraine — Holding an election amid threats of invasion and sabotage by fifth-column separatists is the most severe test a democracy can endure. But as President Abraham Lincoln said, facing re-election in 1864 while America’s Civil War still raged, “We cannot have free government without elections; and if the rebellion could force us to forgo, or postpone, a national election, it might fairly claim to have already conquered and ruined us.”

Like Lincoln, we Ukrainians are resolved to go to the polls to choose a new president, in defiance of every threat. We will not grant victory to those who would discredit and dismember our country by allowing the May 25 vote to be canceled. Our election must go ahead if only to prove that the 100 and more men and women who died for our liberty in the protests around Maidan, Kiev’s Independence Square, did not die in vain.

We will brave every obstacle to vote, for we are determined to confound President Vladimir V. Putin’s efforts to transform our democratic country into a Russian vassal state.

No one should doubt that Mr. Putin’s primary aim is to hollow out our democracy. But Americans, and free people everywhere, must not be deceived by Russia’s aggression, or by Mr. Putin’s current peace offensive.

The separatist cause fomented by Russia would never win on its merits in any free and fair vote of Ukrainians, as a recent Pew Research Center poll has confirmed. Russia’s separatist mafia can win only sham elections of the type that Mr. Putin has imposed on Russia since he came to power 14 years ago, and which he recently forced upon our fellow citizens, now hostages, in Crimea.

The lie Mr. Putin is peddling is that Slavs constitute a special culture that requires the rule of a strong man, and that European and democratic ideals, and the tolerance of minorities that comes with them, are antipathetic to that culture. The best possible rebuke to that falsehood is a successful Ukrainian democracy linked to Europe.

Ukraine’s liberty is a mortal threat to the authoritarian, state-capitalist system that Mr. Putin has unleashed on Russia’s citizens. If Ukrainians, who are also Slavs, can build an open society and a free economy, as we are determined to do, then ordinary Russians may recognize the scale of the liberties and the economic opportunities that have been stolen from them under Mr. Putin’s misrule.

Of course, Ukrainians’ trust in their government has been shattered by the growing realization of former President Viktor F. Yanukovych’s corruption, and of his stealthy collaboration with Russia in undermining Ukraine’s sovereignty. But our trust in one another has never been higher.

The spirit of resistance has kindled a new national consciousness across the country, east and west, north and south. It is this spirit, not one of vengeance, that we must keep alive in the days ahead.

If we do, Ukrainians will secure the democracy and the European future to which they have shown such extraordinary devotion. We can eliminate corruption and cut down the bureaucratic maze that stifles the entrepreneurial spirit of our people. We can embrace a modern educational system, not the hidebound Soviet-style ways that still prevail in too many of our classrooms.

We know that we must man the barricades of freedom ourselves if Ukraine is to remain free. But there is much that America and Europe can do to help, short of sending soldiers to fight. As Winston Churchill wrote to Franklin D. Roosevelt during the darkest months of World War II, when Britain stood alone against Nazism: “Give us the tools, and we will finish the job.” The consequences of allowing Ukraine to be plundered and divided in the name of Mr. Putin’s imperial ambitions are too dire to contemplate.

Ukrainians have battled for freedom, and now we are poised to risk everything we hold dear in order to vote for it. Give us the support, material and moral, that we need so that we can achieve the just and open democracy that is America’s greatest bequest to the world.

Yulia V. Tymoshenko, a former prime minister, is a candidate in this month’s presidential election in Ukraine.


A version of this op-ed appears in print on May 19, 2014, in The International New York Times. Order Reprints|Today's Paper|Subscribe
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Obama’s visit to Japan: strategic significance

IDSA COMMENT

May 20, 2014

President Barak Obama’s state visit to Japan, the first stop of his Asia tour, holds significant implications for the East Asian theater. In the backdrop of mounting criticism related to the Syrian and Crimean crises, Obama’s objective was to showcase the US commitment towards Asia and infuse energy to the pivot/rebalancing strategy. Unlike the February 2013 Obama-Abe summit in Washington where Obama avoided making any direct reference to the contested islands, this time the American President expressed “strong concern” with regard to the heightened tensions in the East China Sea. The joint statement underscored that US has “deployed its most advanced military assets to Japan and provides all necessary capabilities to meet its commitments under the US-Japan Treaty of Mutual Cooperation and Security. These commitments extend to all the territories under the administration of Japan, including the Senkaku Islands”1 . It is important to note that there is no shift in US policy. While US refrains from taking a position on the ultimate sovereignty of the islands, they recognise the islands are under the administration of Japan and fall within the scope of Article 5 of the security treaty obligations. President Obama reiterated Defence Secretary Chuck Hagel’s comments on opposing any unilateral or coercive action undermining Japan’s administrative control of the Senkaku islands. This is reassuring for Japan particularly when a school of thought is emerging in US arguing that it should not get involved in Japan’s conflict with China.

The Chinese expressed concern over the joint statement and articulated that the US-Japan Security Treaty is a product of the Cold War era2 . China maintained that Obama should “stick to its commitment of taking no sides in relevant territorial disputes”3 . Chinese scholars often argue that Japan fabricates the ‘China threat’ theory to justify Abe’s calculated moves towards making Japan a “normal country”. China argues that the right wing orientation of Abe reflects in his approach towards history, Yasukuni Shrine, initiatives to change the pacifist orientation of the constitution, and the recent shifts in security policy.

Prime Minister Abe is eager to consolidate Japan’s position in the fast evolving regional security architecture by strengthening the security alliance with the US, which is expected to serve the goal of managing a rising China. This summit was an opportunity for Abe to erase faultlines, especially after his December visit to the Yasukuni shrine which displeased his most important ally. Japan’s takeaway from this summit was that Abe for the first time managed to get a US President clearly articulate American position on one of the security hotspots in the region- the fiercely contested sovereignty claims over the Senkaku/Diaoyu islands. Obama’s utmost priority is securing market access and the much debated Trans-Pacific Partnership (TPP) free trade negotiation, the economic pillar of his rebalancing policy, to reach an agreement. However, things did not unfold to that effect. TPP free trade initiative continued to navigate through difficult negotiations on tariff barriers.

Differences over the issue of elimination of tariff barriers between the US and Japan have delayed the TPP negotiations. While Japan is keen on protecting its sensitive sectors such as rice, wheat, beef and pork, dairy and sugar, US is firm on the issue of elimination of agricultural tariffs. The US is keen on Japan making substantial tariff reduction related to beef imports. During bilateral discussions to address the unresolved issues, reduction of the existing tariff rate of 38.5 percent is fiercely debated. Meanwhile, Japan decided to ease tariff on frozen beef to 19.5 percent within 18 years in its economic partnership agreement with Australia. Abe cannot afford major reduction in the tariff since it would affect the cattle farmers. With regard to pork, there is a debate over the gate price system. The US stresses on reducing the existing 4.3 percent tariff on pork. The influential farm lobby in Japan, the Central Union of Agricultural Co-operatives (JA-Zenchu) registered strong protest fighting the trade liberalisation arguing that the Japanese farming industry should not be “victimized for the sake of the Japan-U.S. alliance” or for the benefit of the US with influx of cheaper imports.

How Japan Can Support America's Pivot: TPP and a Strong Economy


May 19, 2014

The most important and often overlooked thing Japan can do to support the U.S. pivot and the long-term strength of the U.S.-Japan alliance is to fix its economy and, in turn, further deepen and broaden U.S.-Japan economic ties. So says Dr. Satu Limaye, Director of the East West Center in Washington D.C. Success in that area, combined with further defense collaboration with the U.S. and improved Japanese relations with its neighbors, will be what Limaye calls the ‘triple crown’ of the continued centrality of the U.S.-Japan relationship to the U.S. rebalance to Asia.

According to Limaye, Japan needs to become again an engine for economic growth in the region. Without successfully addressing its economic problems, “Japan won’t be able to afford to fund its defense programs or respond to its major demographic challenges,” which include an ageing and declining population.

While the state of Japan’s economy might not be as bad as some say, Japan does have serious economic problems. Entrenched deflation resulting in weakened demand, slow growth,government debt more than twice GDPand structural problems are all issues the Abe administration is seeking to address. Limaye hopes that Japan will find the solution to its economic troubles through Prime Minister Shinzo Abe’s ‘Abenomics’.

Abenomics, which includes a loose monetary stance, fiscal stimulus and structural reforms, was launched following Abe’s election at the end of 2012. After almost a year and a half, is Abenomics working? The short answer is yes: immediate GDP growth (from 0.9 to 1.7 %), an increase in the stock market and yen depreciation leading to a hike in wages and potentially higher spending are all seen as signs that Abenomics is making progress. But the hesitation to deem Abenomics a success at this early stage is captured by Justin Wolfers of the Brookings Institute. Referring to the recent improvements in the Japanese economy, Wolfers asks whether this is evidence of a “slow adjustment to a policy that will have large long-run effects or a small initial effect because there is only going to be a small long-run effect.” Whether Abenomics will bring long-term benefits for Japan and allow it to respond to its demographic challenges and commit more to defense and foreign policy initiatives is yet to be seen. Improvements to the Japanese economy won’t happen quickly.

China steps up speed of oil stockpiling as tensions mount in Asia

Beijing has ordered an "unprecedented" build up of oil reserves as West prepares for possible oil sanctions against Russia.

China's oil imports hit an all-time high in April as Beijing stockpiles crude Photo: Alamy


China is stockpiling oil for its strategic petroleum reserve at a record pace, intervening on a scale large enough to send a powerful pulse through the world crude market.

The move comes as tensions mount in the South China Sea, and the West prepares possible oil sanctions against Russia over the crisis in Eastern Ukraine. Analysts believe China is quietly building up buffers against a possible spike in oil prices or disruptions in supply.

The International Energy Agency (IEA) said in its latest monthly report that China imported 6.81m barrels a day in April, an all-time high. This is raising eyebrows since China’s economy has been slowing for months, with slump conditions in the steel industry and a sharp downturn in new construction.

The agency estimates that 1.4m b/d was funnelled into China’s fast-expanding network of storage facilities, deeming it “an unprecedented build”. Shipments were heavily concentrated at Chinese ports nearest the new reserve basins at Tianjin and Huangdao. “We think this is a big deal,” said one official.

China accounts for 40pc of all growth in world oil demand, so any serious boost to its strategic reserves tightens the global supply almost instantly and pushes up the spot price.

Michael Lewis, head of commodities at Deutsche Bank, said Chinese officials at Beijing's Strategic Reserve Bureau are playing the oil market tactically, or “buying the dips” in trader parlance. They add to stocks whenever Brent crude prices fall to key support lines, as occurred earlier this Spring. This is currently around $105.

“It's is very similar to what they have been doing with copper. Whenever it drops below $7,000 (a tonne), they see it as a buying opportunity. They do the same with agricultural commodities,” he said.

China is putting a floor of sorts underneath the global oil market, calling into question predictions by the big oil trading banks that prices will deflate this year as more crude comes on stream from Libya, Iraq, and Iran, and as the US keeps adding supply shale.

The strategic buying could go on for a long time since China is rapidly expanding its reserve capacity from 160m barrels to 500m by 2020, with sites scattered across the country.

Russia’s Elusive Quest for Influence in Asia


Putin arrives in Shanghai desperate to reorient Russia’s Asia policy amid tensions with the West and China’s rise.
By Sergey Radchenko
May 20, 2014

One of the most useful exercises for understanding Russia’s geopolitical dilemmas is to take any of the number of commercial flights from Moscow to Vladivostok, in the Russian Far East. It is a journey of about eight hours, covering thousands of miles and a dozen time zones of virtually uninhabited space – in the words of a 1960s Soviet hit, “a green sea of the taiga.” It really does look like a sea from 30,000 feet, rolling in all directions: forbidding, vast, mesmerizing. For generations Russia has tried to come to terms with its size, sending explorers, colonists, convicts, peasants, soldiers, and Youth Communist league activists to build up islands of “civilization” across Siberia and the Far East.

They built cities dilapidated from inception, laid roads that turned to swamps, erected golden church domes and monuments to Lenin. They brought Russia to Asia and made Asia a part of Russia, leaving indelible marks on Russia’s identity, its present dilemmas, and its future directions. Putin’s arrival in China this week highlights the continued – indeed, growing – importance of Asia in Russia’s global calculus. Today, perhaps more than ever, Russia looks East, not West. It sees Asia’s potential markets, eyes its potential battlefields, and seeks a role for itself as a broker, a visionary, and a leader.

Russia’s Asia policy rests upon three pillars. The first is economic ties. Russia’s number one trade partner is China with an annual turnover of nearly $90 billion. Japan and South Korea jointly account for another $60 billion. All three import Russia’s natural resources, primarily oil and LNG. These products make up more than two-thirds of Russia’s exports to China and South Korea, and over 80 percent of exports to Japan. Minerals, timber, and fish account for most of the remaining percentage, while Russia’s industrial and “high tech” goods barely even appear in the statistical tables.

Russia’s export of oil and gas to the dynamic Asian markets can be lauded as the so-called “energy lever” or derided as dependence on a “natural resource appendage.” Regardless, there is just no alternative to oil and gas, especially in the underdeveloped provinces of Siberia and the Far East. Putin has raised concerns about the unbalanced structure of Russia’s Asian trade, particularly with China. In an interview earlier this week he againexpressed his hope that the Chinese would invest in something other than Siberian oil and gas and even create “technological and industrial alliances” with Russian companies. But there is as yet little to show for all his efforts to attract Chinese, or, indeed, Japanese or South Korean financing for developmental projects in any area other than the extractive industries.

Vladimir Putin faces giving ground in China to seal gas deal

Long-coveted prize would allow Russia to switch sales from Europe to the Far East and transform the Eurasian gas market


China National Petroleum Corporation has just made a huge discovery of natural gas in Sichaun Photo: AFP
19 May 2014

Russian president Vladimir Putin may have to accept unpalatable terms from China to clinch a massive gas pipeline deal in Shanghai this week, abandoning red lines defended tooth and claw by the Kremlin for the past decade.

The Russian state gas giant Gazprom said it is just “digits” away from an accord to supply North East China with 38bn cubic metres (BCM) for 30 years as soon as 2018. It is a long-coveted prize that would allow Russia to switch sales from Europe to the Far East and totally transform the Eurasian gas market.

Gazprom’s share price has soared 14pc this month as negotiations reach a climax. Investors are betting that the deal could be the start of an even greater build-up in gas shipments to Asia that would ultimately eclipse sales to Europe, currently 130 BCM, or 60pc of Gazprom’s revenues.

Mr Putin said the deal had “nearly been finalised” and was a perfect fit for both sides: allowing Russia to diversify its sales and letting China plug its “energy deficit” and switch to a cleaner fuel.

Mr Putin has seized on the deal to create the impression that China is allied with Russia in a common front against the West, telling the Chinese press this week that the countries' outlooks are “almost identical” in global affairs.

Beijing did not in fact support Russia at the United Nations over the annexation of Crimea and is irked by the precedent of popular referendums used to justify secessions - given its own simmering problems with the Uighurs in Xinjiang - but it has chosen to let the claims pass.

The gas contract would insulate Russia from serious damage as the EU draws up plans to slash its dependence on Gazprom, partly by switching to liquefied natural gas (LNG) from North Africa, Qatar and ultimately North America, but also by opening the way for shale gas development. Yet there is every sign that Beijing intends to drive a hard bargain while Mr Putin so badly needs the political cover of a Chinese deal.

“The reality is that China now holds the whip hand and they will drive a very hard bargain. For them this is just commerce,” said Ian Bond, from the Centre for European Reform.

This week's crucial vote is in Europe – but not in the European Union

If Ukraine can hold a democratic election for its president next Sunday, there's a hope it can return to peaceful negotiations


The Guardian, Monday 19 May 2014

Armed pro-Russian militants move to positions as they engage in skirmishes with Ukrainian soldiers outside Slovyansk, in eastern Ukraine. Photograph: Maxim Shipenkov/EPA

This week Europe will have 30 elections: 28 national ones for the European parliament, one European Union-wide vote to anoint a so-called Spitzenkandidat to lead the European commission, and Ukraine's presidential election on 25 May. Between them, they will draw the map of a continent in disarray.

Unless all the opinion polls are wrong, the 28 national elections will produce a large vote for a zoological array of "anti" parties – from Ukip in Britain, Jobbik in Hungary, the Front National in France to Syriza in Greece. Most of these are on the xenophobic right, but you can't say that of Syriza or Beppe Grillo's Five Star Movement in Italy. The one thing they all have in common is that they are anti. Anti the established order; anti the mainstream parties; anti the EU as it is at the moment.

Anti-unemployment, on the left and the right. Anti-immigration, mainly on the right. Anti-boredom too – and most mainstream European politicians can bore for Belgium.

These parties will get a lot of votes because they reflect the anger and disillusionment of a lot of Europeans. People feel that their lives are getting worse, one way or another, and that Europe has become part of the problem rather than the solution.

According to the regular Eurobarometer poll, trust in the EU across its member states had sunk from as high as 50% in autumn 2004 to 31% at the end of last year. Although a recent Pew poll showed a slight upturn in favourable views, it also found that two-thirds of EU citizens feel their voices do not count and the EU does not understand the needs of its citizens. Turnout in every successive election to the European parliament since 1979 has declined, while distrust of it has soared. And yet, under the Lisbon treaty, it will have more powers than ever. Formally speaking, most of what the EU does now requires the parliament's assent.

Euro-idealists have a logical answer to this problem: more democracy. Hence the idea of what in most European languages are called Spitzenkandidaten: leading candidates for president of the European commission from the main pan-EU groupings of political parties. Did you watch their televised debate on Eurovision last Thursday? Go on, surprise me. Really? And did you stay awake?

We Should Be Preparing for Post-Oil Future Now

May. 19 2014 


Wikicommons

Fossil fuel companies have lobbied hard — and often successfully — against effective climate policies. But a November 2013 report by the environmental research group CDP revealed that at least 29 major companies, including five major oil producers, are basing their internal planning on the assumption that such policies — ­specifically, a government-mandated carbon price — will be a reality as soon as 2020. The question now is whether oil-­producing countries' governments and citizens share this expectation.

World leaders are ostensibly committed to keeping the increase in average global temperature below 2 degrees Celsius relative to preindustrial levels — the threshold beyond which the most catastrophic effects of global warming would be triggered. Indeed, they endorsed the limit at the 2009 Copenhagen Climate Change Conference and again in Cancun the following year.

Advanced nations are already formulating more responsible climate-change policies.

Success will require that up to 80 percent of proven oil, gas and coal reserves not be consumed. This conclusion shapes the risk analysis of these carbon assets, which are a major contributor to their owners' market capitalization. It is also driving a global campaign to lobby municipalities, public universities and pension funds to divest from fossil fuels.

While the introduction of a more responsible climate change policy may seem far off, serious work by senior officials and business leaders to formulate one has begun in many advanced countries. This is because, unlike news cycles, which are measured in days or weeks, or electoral politics, which plays out over months and years, extractive industries' investment timelines are typically 20 to 25 years. This means, for example, that one only has to posit significant carbon taxes in 2020 — two government transitions away from now in most The Organization for Economic Cooperation and Development countries — for such taxes to affect returns over most of the lifetime of an investment decision made now. How to model such eventualities is a simple risk management question.

America's Military Bases in the Asia-Pacific: Strategic Asset or Vulnerability?


A new book hopes to shed some light on a critical topic.
May 18, 2014


By: Carnes Lord and Andrew S. Erickson, Editors
U.S. Naval Institute Press, 240 pages, $47.95

With yet another territorial dispute underway in the South China Sea, this time over China’s placement of a massive oil rig inside Vietnam’s exclusive economic zone, the arrival ofthe new book Rebalancing U.S. Forces: Basing and Forward Presence in the Asia-Pacific could hardly be more timely. Do not let the title of this collaborative masterwork deceive. More than merely a history of America’s basing archipelago in the Asia-Pacific theater, Rebalancing U.S. Forces is a critical examination of the assumptions underlying U.S. basing, and therefore U.S. strategy, for the region. The result is some worrying questions policy makers and military planners must reckon with as they struggle with the rapidly shifting security landscape in the Western Pacific and Indian Ocean.

Editors Carnes Lord and Andrew Erickson, both professors at the U.S. Naval War College, are uniquely suited for this project. In addition to his academic accomplishments, Carnes Lord has long service inside the White House and the National Security Council staff. Andrew Erickson’s intimate knowledge of Chinaand its military forces and doctrine has made him a veritable one-man national asset. Lord and Erickson, in turn, have recruited an eminent roster of contributors to this anthology who provide a survey of the history, practicalities and future of the U.S. base structure in the Asia-Pacific region. The recurring theme from all of these contributors is an underappreciated logical conundrum: while America’s military bases in the region are essential for its diplomatic and military strategies, they are also swiftly becoming its greatest weakness, and call into question assumptions and military operating concepts long taken for granted.

Erickson and Justin D. Mikolay begin the book’s examination on Guam. Political constraints and friction with allies and partners around the region have led U.S. military planners to look to Guam, U.S. territory on the edge of the Western Pacific battle space and an island whose residents and political leaders, unlike those on Okinawa, actually clamor for a larger military presence. The result is plans to greatly expand the basing of submarines, airpower, and Marines on the island, decisions Erickson and Mikolay endorse. However, they also point out that Chinese military planners have taken note of the rising U.S. military concentration on Guam and thus its troubling emergence as a tempting target during a possible conflict.

Back to Balancing? Ukraine, the Status Quo, and American Grand Strategy in 2014


May 19, 2014

Those responsible for crafting U.S. grand strategy grapple with a central dilemma when it comes to lofty questions of international order. On the one hand, U.S. foreign policy is engineered towards promoting a broad diffusion of power in the international system. Burden-sharing is both cost-effective and chimes with America’s political culture of accepting only limited liability for what happens globally. On the other hand, American statesmen are discerning, keen to ensure that members of the Great Power club are of the correct sort.

This basic challenge of “global gatekeeping” comprises two halves. First, how can the diffusion of influence in world politics be made to proceed in a way that guarantees that agitators and outright revisionists will be held in abeyance? Second, how can it be ensured that today’s “responsible stakeholders” do not morph into tomorrow’s spoilers? When friends in, say, Germany, Japan and Brazil tell U.S. leaders that their nations will maintain the international status quo, how can leaders in Washington believe that such policies will not be reversed by future generations of foreign leaders? In short, what guarantees are there that states will continue to abide by American-made rules of the road?

One obvious way in which states can be made to “get along” in world politics is through facing a shared geopolitical threat. Under such conditions, both sides can be sure that each will not deviate from a broad arc of commonly agreed foreign policy goals, at least vis-à-vis their mutual foe. When national security is at stake, states are less likely to abandon their allies and renege on their commitments. On the contrary, fear or hatred of a looming geopolitical threat will breed cooperation among those who live in its shadow.

Standing Up to China's Hackers

7 MAY 19, 2014

For years, the Chinese government has been stealing secrets from American companies. Today, the U.S. finally put its foot down.

The Justice Department announced that five Chinese military officials have been indicted on charges of espionage against American steel, solar and nuclear power companies -- the first time the U.S. has brought such accusations against another country.

It's the right thing to do. Cybercrime targeting trade secrets and intellectual property is a booming business, one that costs U.S. companies billions each year. It's been called the greatest transfer of wealth in human history. And China's legions of cyberspies are, bygeneral consensus, the world's worst offenders.

The U.S. has now signaled that it will protect companies against such intrusions after years of private warnings to the Chinese. And, more important, the indictment will hopefully remind China that curtailing this kind of abuse is in its own economic interest.

On the first score, the indictment amounts to a defense of a long-established principle of espionage: While governments can spy to protect national security, as the U.S. does, they shouldn't steal corporate secrets to benefit their own businesses. The Chinese government has been ostentatiously flouting this norm for years.

Take Solarworld AG, a solar-panel maker. The indictment alleges that in 2012, Chinese military hackers stole thousands of files from the company's U.S. subsidiaries relating to pricing, cash flow and corporate strategy, and that they pilfered privileged attorney-client communications related to trade litigation. Around the same time, it says, Solarworld's Chinese competitors were dumping products onto the U.S. market below cost, hoping to gain market share.

Such intrusion has no plausible national-security rationale; it's purely theft. And it's by no means anomalous. A study last year by the computer-security company Mandiant Corp. said that hackers associated with the Chinese army had stolen hundreds of terabytes of data from 141 companies in 20 industries.

This might make sense for China in the short term: When U.S. companies spend time and money researching new products, only to have the resulting technology stolen and given to their Chinese competitors, China gains an obvious competitive edge. In the long term, however, the strategy of aggressively mixing espionage with commerce is doomed.

First, if China intends for its homegrown companies to become global leaders, it's going to have to convince international customers -- not to mention foreign regulators -- that their products aren't being bugged. Huawei Technologies Co., China's biggest maker of phone-network equipment, offers one cautionary example: Regulators have repeatedly blocked it from making business deals in the U.S. and elsewhere over espionage fears.

The surveillance operation of the U.S. National Security Agency offers a similar lesson. As trust in American technology companies has plummeted globally since their cooperation with the NSA was revealed last year, the costs have kept piling up -- potentially reaching $35 billion for the industry by 2016, according to one estimate.

Unprotected in the East: NATO Appears Toothless in Ukraine Crisis

By SPIEGEL Staff

If Russia were to engage in military aggression in the Baltics, NATO would be unable to defend the region using conventional means. An internal report highlights weaknesses in the alliance.

They were big words, spoken almost as if they had been written in stone. "Our commitment to collective defence is rock solid, now and for the future," NATO Secretary General Anders Fogh Rasmussen said more than a week ago, first in the Polish capital Warsaw and then, on the same day, in the Estonian capital Tallinn. Before that, the US ambassador to Latvia, speaking to local and American soldiers at a military base in the country, had sounded equally forceful when he insisted that the NATO partners and Latvia are standing "shoulder to shoulder."

Rasmussen's remarks were well intentioned but relatively toothless -- little more than whistling in the dark. The Balts and Poles sense it, and the NATO secretary general knows it.

At its core, the Western defense alliance consists of a promise that the 28 member states make to each other in Article 5 of the NATO treaty: An attack against one or several members is considered as an attack against all. The article states that if the so-called mutual defense clause is applied, each member state, to the best of its ability, must rush to the aid of the NATO partner under attack. Most recently, Turkey considered invoking Article 5 and requesting assistance after several rocket attacks from neighboring Syria in late 2012. Since then, two German batteries of Patriot air defense missiles have been stationed in Turkey as protection.

So what happens if the Baltic nations invoke Article 5? What if Russia attempts to destabilize the Baltics with threatening military gestures? And what if it violates its borders with Estonia and Latvia?

These scenarios are currently being discussed at length in NATO and at the German Defense Ministry in Berlin. According to information SPIEGEL obtained by SPIEGEL, a draft version of a comprehensive, restricted internal NATO assessment of the situation reads: "Russia's ability to undertake significant military action with little warning presents a wider threat to the maintenance of security and stability in the Euro-Atlantic area. Russia can pose a local or regional military threat at short notice at a place of its choosing. This is both destabilizing and threatening for those allies bordering or in close proximity to Russia."

US Indicts 5 PLA Officers For Hacking, Economic Espionage


In an unprecedented move, the U.S. Justice Department has charged 5 PLA officers with crimes related to cyber espionage
May 20, 2014

In an unprecedented move, the U.S. Justice Department has charged five officers in the People’s Liberation Army (PLA) with crimes related to cyber espionage. According to the Justice Department’s press release, a grand jury in Pittsburgh, Pennsylvania has “indicted five Chinese military hackers for computer hacking, economic espionage and other offenses directed at six American victims in the U.S. nuclear power, metals and solar products industries.” The defendants are identified as Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu, and Gu Chunhui, all officers in the PLA’s Unit 61398 (alleged to be a major source of Chinese cyber attacks). The victims are Westinghouse Electric Co; U.S. subsidiaries of SolarWorld AG; U.S. Steel; Allegheny Technologies Inc. (ATI); the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW); and Alcoa Inc.

In remarks at a press conference, U.S. Attorney General Eric Holder noted that the charges were “the first ever” to be filed “against known state actors for infiltrating U.S. commercial targets by cyber means.” Holder alleged that the PLA officers had stolen trade secrets and other sensitive business information “for no reason other than to advantage state-owned companies and other interests in China.” Holder concluded by saying that the case “should serve as a wake-up call to the seriousness of the ongoing cyberthreat. These criminal charges represent a groundbreaking step forward in addressing that threat.”

Assistant Attorney General for National Security John Carlin noted that the U.S. has often been challenged by China to provide evidence for its complaints about cyber espionage. “In the past, when we brought concerns such as these to Chinese government officials, they responded by publicly challenging us to provide hard evidence of their hacking that could stand up in court. Well today, we are,” Carlin said. He added, “Cyber theft is real theft and we will hold state sponsored cyber thieves accountable as we would any other transnational criminal organization that steals our goods and breaks our laws.”

Carlin also provided specific examples of how the alleged hacking worked. While Westinghouse was in the midst of negotiations with a Chinese state-owned enterprise over constructing nuclear power plants, Carlin said, “the hackers stole trade secret designs for components of those plants. “ He also noted that the hackers stole “cost, pricing, and strategy information” from SolarWorld at the same time that Chinese competitors were driving SolarWorld out of the Chinese market.

Are We Underestimating China's Military?

"There is a lagging but growing realization that China’s military capabilities in numerous areas of military competition are rapidly approaching, if not exceeding, those of the United States." 

May 19, 2014

This past March, Brian Weeden, a former U.S. Air Force space analyst published a report demonstrating that China is the first country in the world with a weapon capable of destroying satellites in geostationary orbit. The report detailed how China tested in May 2013 a mobile, direct ascent anti-satellite (ASAT) weapon system capable of targeting satellites in medium earth orbit, highly elliptical orbit, or geostationary orbit. The new capability complements China’s arsenal of kinetic and non-kinetic ASATs, and signals every U.S. satellite is now vulnerable to destruction in time of war.

Mr. Weeden’s report follows on the heels of revelations in January that China had tested the WU-14 hypersonic glide vehicle, an experimental weapon capable of evading missile defenses. With the Army testing its own Advanced Hypersonic Weapon in November 2011, many observers had regarded hypersonics as an area of cutting-edge development where the United States held a significant technological lead. China’s January test shattered that assumption and conveyed the Chinese were at most a few years behind. 

In Congress, Frank Kendall, the Deputy Undersecretary of Defense for Acquisition, Technology, and Logistics recently testified that “the U.S. military’s technological superiority is being ‘challenged in ways that I have not seen for decades, particularly in the Asia-Pacific region,” by China. He further added: "Technological superiority is not assured. This is not a future problem. This is a here-now problem." China’s military developments are rapidly outpacing their coverage in the press and academia, and there is a lagging but growing realization that China’s military capabilities in numerous areas of military competition are rapidly approaching, if not exceeding, those of the United States.

Avoiding Analytical Mistakes

Faced with the impressive scope and scale of China’s military modernization, analysts must avoid some of the mistakes assessors of the Asia-Pacific military balance have made over the past decade. While not comprehensive, the following are a few for consideration.

The first common error is to count the totality of U.S., or U.S. and Allied forces and measure them against China's, believing if the United States has more forces, then it maintains superiority. Unfortunately, the United States does not fight on a chessboard. What really matters is the localized correlation of forces, and that may be a stronger factor toward deterrence in the region.

Militia 'Arms Race' Threatens Deadly Escalation in Ukraine Conflict


WHAT'S THIS?

An armed man of the Donbass Battalion, a non-affiliated militia group that has stated its intent to fight in support of Ukrainian unity, is on guard at their base in the village of Velyka Novosilka, near Donetsk, eastern Ukraine, Friday, May 16, 2014.

BY CHRISTOPHER MILLER

VELYKA NOVOSILKA/POKROVSKE, Ukraine –- The black-clad masked man with a Kalashnikov resting in his arms speaks confidently of the mission about to get underway. “We will act fast, like lightning, and we will be efficient,” he says. But should things turn hairy, “We’re ready for a war.”

To prove his point, another gestures to a rusty metal pipe with a hastily welded handle resting at his feet. “That’s a Ukrainian bazooka. Light a match, and boom!” he explains.

In the dusty courtyard of a rickety agricultural factory in this bucolic eastern Ukrainian town of less than 40,000 people, some 30 members of the Donbass Battalion, a pro-Kiev militia unit created to fight Kremlin-backed separatists who have besieged the country’s eastern regions, is readying to storm police headquarters and city hall in Velyka Novosilka.

Days before, separatists removed the town’s Kiev-appointed mayor from his office, seizing control of the city-council building, and raising the red, black and blue separatist flag of the so-called Donetsk People’s Republic, as police stood idly by. Today, on May 15, the ragtag militia group will reinstall Alexander Alexandrovich Arikh, a 29-year-old lawyer, as mayor, take down the self-proclaimed republic’s flag and hoist the blue-and-yellow Ukrainian flag.

Later, with Donbass Battalion on guard, several Velyka Novosilka pro-Ukrainians removed DPR flag & raised UA flag. pic.twitter.com/e8PDVoSyOh

— Christopher Miller (@ChristopherJM) May 15, 2014

In final preparations before the mission, battalion members — donning full combat gear — go over logistics, as they fill their pockets with zip ties and grenades, and double- and triple-check magazines before clicking them into their automatic rifles.

Squeezed into ramshackle Soviet-era vehicles, they motor swiftly in a column over cratered roads toward the police station. There, they leap from the cars and rush the building, shattering its windows with the butts of their rifles and kicking in the doors, as they order 10 trembling policemen at gunpoint to drop to the ground.

Inside police HQ, Donbass Battalion fighters held police at gunpoint, then lectured them on duty to country, loyalty. pic.twitter.com/XkPmbmh7ej

— Christopher Miller (@ChristopherJM) May 15, 2014

After disarming them and proselytizing to them their ideas on loyalty and duty to country, the group moves on to the city council building, where they raise the Ukrainian flag. In all, the mission lasts no more than 20 minutes, and it is done without firing a shot.