Careful what we ask for

We must be careful “what we ask for, for we may surely get it”.  

The overthrow of Putin will not end the war in Ukraine, and may worsen it. Putin, as the leader of Russia, is also a reflection of the will of the Russian people. A significant majority of Russians still support Putin and the war. There is a long way to go before the Russian people will be ready to stop the war or relinquish the territories already conquered. 2023 or beyond. 

First, of course, Putin may become the symbol of Russian failure in Ukraine. Do not expect a groundswell of feeling that the struggle in Ukraine is unjust; that will be asking too much of the average Russian. The easiest target before turning on Putin will be Defense Minister Sergei Shoigu, who, by all accounts, has not done a very good job of the invasion and has never served in the Russian (or Soviet before) military.  

It is easier to lose faith in one individual than in a national philosophy of victimhood and rejection. A facesaving narrative is difficult to reject, like the post-Soviet states joined NATO not because they were afraid that Russia would revert to its previous imperial dreams, but because NATO forced them to join and occupied the former Warsaw Pact countries.  

As long as that kind of thinking remains the default message, unchallenged, there will be strife and a willingness to invade other countries. The rebuilding of the "legitimate Russian Empire" will not disappear as a national goal. There will remain resentment against all countries that joined NATO (they were too weak under pressure, and too weak to stand up for Russia) and against any country that considers joining NATO (cowards and traitors to their Russian people). The loyalty and obligation of Russia to Russians outside the Russian Federation will remain.  

The Soviet Union was not a conglomeration of independent countries joined in a “union”; it was the Russian Empire under another name. The fact that some leaders came from constituent “Republics” does not change the very Russian nature of the USSR. Therefore, the fall of the USSR in 1991 was the second fall of the Russian Empire in a century.

If, and it is a huge “if”, Putin was overthrown (or were to die of a “natural cause”), we should not expect any new leadership to disavow the invasion of Ukraine, nor de-annexe the newly annexed territories. Crimea will not be on the bargaining table even if new leadership does agree to talk.  

Personally, I discount any reports of Putin's health. He is as healthy as any national leader, but that requires a digression that I'll avoid. 

Therefore, if suddenly he is no longer the President of Russia, it will have been through a coup, and a coup will not be staged by defeatists and the weak. Coups are not easy things, and they are rarely clean. Those perpetrating coups are ready for blood to be spilt, and the blood of their own compatriots who oppose their taking power. These are not the people who will seek to stop a war so that adversaries will no longer be hurt or killed.  

Yes, hundreds of thousands are fleeing the country to avoid conscription in a poorly performing military. But these hundreds of thousands didn't try to leave before the mobilisation and threat of conscription. That is not the same as being willing to go out into the streets in adequate numbers to force a change. That won't happen, yet. More importantly, most Russians still support the war, though that support is eroding. 

It will take time and more battlefield defeats to swing opinion definitively against the war and, when that happens, against Putin's leadership. 

But National Honour will demand a victory, until it becomes very clear that such a victory is impossible. While we in the west may have come to the conclusion that a Russian victory is impossible, Russian media most certainly has not come to that conclusion. 

Overthrowing, or otherwise replacing Putin (after he replaces DM Shoigu and keeps replacing generals), might not result in a peace-seeking government. It may result in another hardliner taking power and redoubling efforts in Ukraine. The real danger is that a replacement might decide to blur the lines with NATO and test NATO's actual resolve, potentially by hitting supply or logistics centres on the “other side” of the Ukrainian border with Poland, for example. As NATO definitely does not want to get into a war that may escalate into a nuclear conflict, a new strongman in the Kremlin may decide that NATO's redlines can be ignored. 

A Putin replacement will know that he (and I am assuming that it will be a “he”) knows that he must deliver battlefield victories, quickly, or suffer potentially the same fate as the Kerensky government of 1917. Wikipedia sums it up best: " Despite mass opposition to the war, Kerensky chose to continue Russia's participation. His government cracked down on anti-war sentiment and dissent in 1917, which made his administration even more unpopular. Kerensky remained in power until the October Revolution."

Therefore, we should be careful what we wish for. And Russia should be particularly careful what it wishes for in the coming weeks and months. 

Instability in the Russian periphery

This is just a very quick note to highlight the medium-term potential for serious conflicts around the Russin periphery. The 'distraction' of almost all of Russia's combat capability to the Ukrainian war will deprive Moscow of its influence across the rest of its sphere. 

Already we see a renewed conflict between Azerbaijan and Armenia, a conflict that is 30+ years old, but 'frozen' by the Russian alliance with Armenia, until two years ago when Azerbaijan finally felt they had the capability, will, and ability to achieve their goals before Moscow could enforce a peace. 

It seems Azerbaijan may believe that Russia will not have the authority of power to impose a new peace. This could mean a renewed war. Already 'border skirmishes have killed almost a hundred people over the past couple of days. This could get much worse, quickly. Armenia has called on Russia to send military support and peacekeeping. That is unlikely to be at a force level sufficient to deter Azerbaijan.

This is one example only.

Looking westward to Georgia, will they contemplate asserting its sovereignty over South Ossetia and Abkhazia? Both were taken from Georgia in 2008 in response to Georgia's insistence on seeking NATO membership. Neither South Ossetia nor Abkhazia has been incorporated into the Russian Federation, but both have been recognised by Russia as 'independent' states and are garrisoned by Russian troops. 

How long will it be before Putin is forced to hollow out his garrisons, and what will Georgia's response be?

How long will Chechniay continue to play the game of being a quasi-independent state within the Russian Federation? The cream of Chechen pro-Russian forces are committed to Ukraine, leaving a rump of 'loyal' forces at home.

The coming couple of years could see renewed conflict surrounding Russia. Much will be blamed on external interference (the CIA, American and European clandestine support, Islamic fundamentalism supported by the Taliban and Iran), and much of it will be. After all, stirring up the provinces has been a time-trusted way of distracting the centre. 

With or without external support, expect the Russian periphery to become an active, and dangerous area of the world. There are too many scores to be settled, and there is no longer a central force strong enough to enforce stabilisation. 

China will not be invading Taiwan (probably)

One morning in the early 1950s, Herb Roberts and the rest of his US Army unit stood at parade rest while a small convoy arrived at their post. Out came Generalissimo Chiang Kai-shek to inspect the troops, and thank them for their presence and what that meant to protect Formosa (Taiwan) from a potential Chinese invasion. Now, seventy years later, the American government is, once again, committing to Taiwan's defence from a mainland invasion.

My thinking is pretty clear; China will not be militarily invading Taiwan in the next one to two years, unless something significant changes in the international political landscape. The conditions are not right for such a move, and there is a probability that such a military option will fail, dragging China and the rest of the world into a deep depression. Earlier this year, the prospects for such an invasion may have seemed higher, yet there frankly has been no realistic likelihood of an actual invasion anytime recently. Nor is it likely to happen soon.

Taiwan and the Straits

First, Taiwan is not Ukraine, and China is not Russia. The dynamics are entirely different, and any comparisons run into problems pretty quickly. Fundamentally, China has discovered that patience and planning deliver the results they desire, and kinetic solutions have not worked well for them in the past. Still, the western press continues to work itself into a frenzy, and various actions by China and the US have fed that frenzy. Missing from the noise have been the Taiwanese themselves, adept as they are at keeping a low profile.

My determination that there will not be an invasion is based on a number of factors that come together to influence decision-making, particularly in Beijing.

First, some history

China, as we know it today, is the result of centuries of political and social evolution, and civil war. Since the 1949 civil war in which the Chinese Communist Party (CCP) ultimately prevailed, the "self-governing province" of Taiwan has been the final bastion of the remnants of the defeated and exiled Nationalist government.

In the post-1949 era, with Soviet communism entrenched in Eastern Europe and communist movements looking more threatening worldwide, it was natural that the US and Europe would provide direct support to Chiang Kai-shek. The communist invasion of Korea and subsequent Chinese military and material support for North Korea cemented Western support for an "independent" and democratic Taiwan.

Mainland China, however, never accepted Taiwan as anything other than a renegade province, a Chinese island purloined by a defeated and fleeing group of Chinese. To this day, China has not changed its opinion. In the 1970s, Richard Nixon "opened" China, at the price of Taiwanese claims to be the legitimate representatives of all of China. This included the recognition by Washington of Beijing as the rightful government of a single Chinese nation that included Taiwan. Recognition of Beijing's supremacy is not the same as abandoning Taiwan.

And so, as country after country removed their embassies from Taipei, including the US, China grew in confidence that one day soon Taiwan would be reunified, by choice or by coercion. Yet that has not happened, and Beijing's patience is running out. What to do? China has limited options, as the only alternative to an invasion is for the people of Taiwan to elect a government with a unification platform. 

So, Beijing can wait, or go to war.

In the years since the end of the civil war and the Korean war, China has gone to war once, invading Vietnam in 1979 in support of Cambodia. The PLA did not acquit itself very well at all.

Suffice to say, China does not have a (recent) history of invading countries or, as Clausewitz famously phrased it, engaging in "politics by other means". Unlike western powers and superpowers, the use of "kinetic" force (warfare) has not been the norm nor even very high on the list of China's options. 

In addition, China has seen that patience delivers to them what they most desire. A negotiated return delivered Hong Kong (and Macau) back to complete Beijing control, while maintaining good relations with the West. Yes, Beijing has broken elements of the transfer agreement (nothing unusual there), but they did wait an entire generation before doing so. Patience.

Subsequently in Hong Kong, China has found that getting someone else (local) to deliver transition (while it provides their “backbone”) is messy for a while but produced good outcomes (for China). The rest of the world simply watched. Clearly, for China, the transition plan worked. Patience and planning.

China is a “natural owner” of a different strategy – and different risks – to achieve its aims in this regard, so why go outside its “comfort zone”?

So, what are the various factors influencing my assessment?

1. Socialism with Chinese characteristics.

Deng famously said in a "60 Minutes" interview in 1986:

"To get rich is no sin. However, what we mean by getting rich is different from what you mean. Wealth in a socialist society belongs to the people."

This was not the start of economic liberalisation in China, but encapsulated the concept of "socialism with Chinese characteristics". Put simply, China can grow rich, but the Communist Party will always remain in power. The Party's determination to do so has been demonstrated, and there is no realistic alternative to the CCP (Chinese Communist Party).

"Socialism with Chinese characteristics” leveraging globalisation has turned China from one of the poorest countries in the world into a solidly middle-income country on its way to becoming a middle-upper-income country. This has not happened by accident, but by developing trading relations across the globe, and by engaging in massive internal infrastructure and market development activity at home. In raw terms, China's GDP is on the cusp of eclipsing that of the United States. 

Any significant interruption of economic growth and stability at home will endanger the CCP and, in particular, Xi Jinping. Indeed, the party and government apparatus will have little difficulty in retaining power, but unrest is not good for growth, and lack of growth is not good for the Party, and in particular, for the Chairman of the Party and his desire to remain Chairman for an additional, unprecedented, third five-year term.

2. Current macro-economic situation

China runs a greater than $650 billion trade surplus with the rest of the world with the vast majority of its exports travelling by sea. China exports over $2.5 trillion annually with the US as its largest importing partner (18%). Chinese imports over $2 trillion in goods and services every year.

$2.5 trillion of exports directly employs a massive swath of the Chinese population, and supports untold millions more people across the country. Disruption to that employment base will ripple through the economy very quickly. 

An invasion of Taiwan would directly threaten that economic engine, because the economic fallout would not be limited to relations with the United States but would impact trade relations with most of its major trading partners.

3. Energy & raw materials

China imports over 30% of its energy needs, the vast majority of which comes by sea. Until recently, there was a steady stream of coal ships from Australia, a flow that has slowed dramatically due to available alternative sources, and the Australian government making comments deemed inappropriate by China.

Over the past fifteen years, China's import of non-food raw materials has almost quadrupled, from around $100 billion monthly to $400billion or more some months.

Almost all that trade must travel by ship, and nearly all shipping must travel through a few choke-points. China's need to import raw materials (and export finished products) is a fundamental strategic disadvantage, not one they can overcome in the foreseeable future. 

How long will the Chinese economy continue to function with 30% of imports removed? Likewise, how long will factories work without inputs, including the computer chips that China (and the rest of the world) rely on Taiwan to provide?

This is no idle threat or risk:

"In particular, Taiwan's position in the world of semiconductor manufacturing is a bit like Saudi Arabia's status in OPEC. TSMC has a 53% market share of the global foundry market (factories contracted to make chips designed in other countries). Other Taiwan-based manufacturers claim a further 10% of the market."

China has been working on a strategic solution, the “belt and road initiative”. Already very successful in providing non-sea access to markets, its continued usefulness exists only if there are countries willing to trade at the other end of the road.

4. What is China learning from the Russian invasion of Ukraine?

There can be little doubt that China is watching the Russian invasion of Ukraine very closely. And China is taking a number of evolving lessons. There is so much to consider, and so many lessons that impact China's short- and medium-term contemplation of any unification-by-force.

The lessons broadly fall into two categories; those supporting an invasion of Taiwan, and those indicating against an invasion (for now).

5. Arguments for an invasion in the short term include:

A. The West doesn't want to get into a shooting war.

The West, and very specifically the US, does not want to engage in a shooting war with anyone, and will go to great lengths to avoid committing their personnel directly to a fight. The West may provide material support to the regime in Taipei, but will not commit troops or their military assets directly. The defence of Ukraine is being carried out by Ukrainians alone, and if the Ukrainian military is defeated, Ukraine will fall. The "cavalry" will not ride to the rescue. 

China may be taking a lesson that if they can quickly defeat the Taiwanese military, the West will, in effect, allow the (re)establishment of Beijing's authority over Taiwan, as they did with Crimea. 

B. After Afghanistan, the US lost the will to fight.

In particular, the United States is exhausted from foreign wars and will not commit to another war (at this time). The rapid collapse of Afghanistan was preventable, but the United States no longer had the will to fight to prop up a foreign government. The failure of the American puppet regime in Kabul provided the world, including Moscow and Beijing, with ample evidence that both American capabilities and national will had failed.

If China is going to invade Taiwan, it must be done before a resurgence in American national will occurs. The unanswerable question is how long Beijing thinks the window of opportunity is open.

C. China's PLA and PLAN are now modern western-quality military forces.

If China has taken any lesson from Russia's invasion of Ukraine, it is that the PLA (People's Liberation Army) and PLAN (People's Liberation Army Navy) must be well trained and well equipped with a modern inventory. On today’s battlefields, raw numbers do not win wars or secure and retain objectives. Massed artillery has its place, but only if that artillery can be brought to bear on targets, and Taiwan is 130 kilometres away at the closest point (excluding the Kinmen islands, 10 km from the mainland city of Xiamen). Leadership in Beijing may believe that the PLA and PLAN have reached that level of professionalism, and are supported by the infrastructure and modern capabilities needed to affect a successful invasion.

Or it may be wishful thinking. I suspect the leadership in Beijing is not (though I have no basis for this statement) as locked into groupthink and a sycophantic echo chamber as Russia appears to have been and remains. 

Years of economic development and peace have not been years of military idleness - Beijing has been building a world-class military capability. The PLA today is a modern, well-trained and well-armed military with no worrisome neighbours that might threaten invasion. National expenditure on defence is second only to the United States in gross terms, and much of that has gone into a decades-long modernisation programme.

The percentage of GDP spent on defence is, however, relatively low by international standards, at a reported 1.7% of GDP. How accurate this number is may be debatable, but without foreign adventures and the need to maintain a vast "empire", China perceives that it is getting good value for that expenditure.

What is clear is that China can massively outspend Taiwan. In 2021, China spent $230 billion on defence against Taiwan's spend of $10.5 billion. The military capacity of the two is also lopsided in the extreme. On paper, China should be able to dominate Taiwan with ease. Sound familiar?

D. Economic consequences run both ways.

Europe’s dependence on Russian energy exports created enormous angst for European nations while global sanctions are clearly impacting Russia.  

China’s exports though are of an entirely different scale and, additionally, Taiwan’s exports of critical technology supplies would stop overnight. Global pain would be both immediate and extreme. Pre-Ukraine, China may have assessed that the world just couldn’t cope with such a scenario and therefore there would be much noise but little response. The invasion could proceed. But, the European response to the Ukraine energy situation was unexpected. Europe accepted hardship would be incurred because it was taking the “right moral approach”. Russia’s cutting of energy to Europe has not split the NATO alliance, and Europe has now shown it might be able to absorb the economic pain. Could the US?

6. What lessons is China learning from Ukraine – against an invasion of Taiwan?

A. You'd better get the logistics and the intelligence right.

If there has been any lesson for all observers from the Russian invasion, it is that you'd better get the logistics and supporting intelligence right. Sure, there are plenty of other lessons, ranging from the importance of a professional NCO cadre to the quality of strategic and operational leadership. But underlying all of these has been the importance of getting the right resources to the right place at the right time, in the quantities required to exceed force needs. It is easier to reposition assets after the battle is won, than it is to win the battle with the wrong or inadequate assets. And if your intelligence doesn’t tell you where to put the assets then success is unlikely.

The Taiwan Straits represents a logistic challenge as daunting as ever there was. D-Day required complete command of the 33km wide English Channel, not the 180km strait that separates Taiwan from China (at the narrowest point). In addition, the allies had almost complete control of the flow of intel from England to the German high command.

Even with almost complete control of the waterway, control of intel, freedom to select landing locations, overwhelming firepower from the massed US and British fleets, and complete control of the skies, Eisenhower still prepared a one-page message that he would read out in the case of a failure of the landings, in which he would accept complete personal responsibility for the failure.

B. Even the apparently weak will rally to defend their freedom.

The expectation what that Russia would take Kyiv in three to four days, that Zelenskyy would flee, and that opposition would collapse. Exactly the opposite happened. While most believed Russia would not invade, the military planned as if they would, and the people of Ukraine rallied to the defence of their country. Russia expected roses and “bread and salt”. What they received was quite significantly different.

China may expect Taiwan to collapse, but Ukraine has provided a lesson that such expectations usually end in ridicule. Taiwan has held free and fair elections for decades, while viewing the continued disenfranchisement of its brothers and sisters across the strait. They know very well what is in store for them, and the only realistic expectation is that the people of Taiwan will likewise rally to the defence of their nation. 

C. Decapitation strikes are more complex than they thought.

Once China believes that it can muster and maintain an invasion fleet sufficient to affect a successful landing, there remains the need to "decapitate" the political and military leadership of Taiwan. Confusion at the top of the Taiwanese government in the days (not hours) following a landing will be vital to ensure the rapid collapse of opposition. Unified leadership will be able to sustain resistance long enough for American military aid, and potentially direct military engagement, to begin. 

Russia attempted to decapitate the Ukrainian leadership, and failed. They are paying the price for that failure. What should have, and could have been a rapid collapse of Ukraine has turned into a nightmare with no easy way out, and has become the embodiment of the "sunk cost fallacy". 

D. Murphy was an optimist.

There is no military (some might argue any) endeavour that will go according to plan. Flexibility in approach is critical, and this means a level of redundancy and devolved decision-making authority that may or may not exist in the PLA and PLAN. Simply put, the PLA and PLAN have not been involved in a shooting war for so long that there is no evidence of how effective their junior office and NCO corps will be in the field. Without that battlefield experience, it would be unwise to hold exceptionally high expectations of their performance.

Because things go wrong, and in combat and military endeavours, lots of things go wrong. The soil will not hold the weight of the vehicles as expected, supplies will not arrive on time, air defence systems might work, or they might not. The quality and accuracy of intel will be sketchy at best, and the "fog of war" will limit the ability of commanders to issue meaningful orders in a timely manner. Poor intel favours the defender in almost all cases.

Ukraine demonstrated that having a big army does not equate to an effective military. It also demonstrated that without a cadre of seasoned NCOs with the ability to make tactical decisions, an offensive force would be very limited in its ability to adapt to changing conditions.

"Murphy's Law" states that "anything that can go wrong, will go wrong". The corollary is "Murphy was an optimist". 

E. The "West" can mobilise tangible support very quickly.

The Western "system" of overlapping alliances (including the very Eastern ASEAN alliance) works on a combination of consensus and individual national priorities. As long as those national priorities do not contradict the common values, there is little disagreement beyond words. Consensus in strategic outlook and foundational values enables individual or collective national actions. This is the international system that Donald Trump disparaged and attempted to withdraw the United States from (and mercifully failed). 

The Russian invasion tested the European (and NATO in particular) system of joint agreement in principles and individual actions. While no NATO country was attacked, NATO members viewed the invasion as a collective threat. Each country then determined the nature, speed and quantity of support that they would provide to Ukraine, and the level of sanctions that they would apply to Russia. Not all countries have contributed to Ukraine's defence, and not all have applied the same level of sanctions. But all have collectively agreed that a response was required, and each is responding as they determine most appropriate.

What this means for China and Taiwan is that invasion by China will be met with the same level of international resolve, a level of resolve that will take China decades to overcome, and a tarnishing of China's international reputation as a peaceful partner in global development.

But will the West/East respond as they did with Ukraine? Taiwan is a long way from Europe and the only feasible supply routes will be from the Pacific. The PLAN has, post-Pelosi, demonstrated the capacity to blockade (who knows how effectively) so, unlike Ukraine, supply support to Taiwan is likely to have to run the gauntlet. A very different proposition. Breaking the gauntlet may necessarily involve sinking Chinese vessels and that would quickly lead to global conflict.

7. What lessons is China taking from Biden's comments and from Pelosi's visit to Taiwan?

Biden three times through the first half of 2022, vowedto militarily defend Taiwan in the event of a Chinese invasion. Each time the White House "walked back" Biden's comments, reiterating that the official US policy regarding Taiwan is "Strategic Ambiguity". The anti-Biden press used this as more "proof" that Biden is a doddery old man unable to control his thinking or speaking. 

China does not care if Biden is fully sane (it already dealt with the weirdness of Trump). China understands that when the President of the United States says something, he is not speaking for himself, but his administration. Biden's clarity or senility is irrelevant to Beijing; it is the fact that he has "said the quiet bit out loud" that matters. 

For over 50 years, China has understood that the President speaks for the implementation of policy, but Congress makes the laws and pays the bills. While Nixon could speak to a One-China with Beijing as its capital, Congress could pass laws funding Taiwanese defence. 

In this context, Speaker Pelosi's visit to Taiwan was a bold statement that the US Congress stands behind the President's comments, and will legislate to support the American defence of Taiwan if required. Little noticed was a follow-up visit by a five-member delegation that included at least one Republican representative, confirming that both political parties (in a post-Trump era) are united in their resolve to defend Taiwan. It was as much a very loud statement to America's allies across the globe as it was a clear warning to Beijing.

8. So why all the noise?

Every five years the Chinese Communist Party Congress elects a general secretary for the coming period. President Xi has held that position for ten years, against the unwritten standards, post-Mao that the position should not be a for-life position, and that political power should pass in a controlled manner. Xi is seeking a third five-year term, and he needs to ensure there is little or no opposition. That might not be so easy in a time of pandemic and debilitating drought.

National security and the external threat have been political cards played again and again across the world. For example, it worked for George W. Bush but it backfired spectacularly for Leopoldo Galtieri when he invaded the Falkland Islands in 1982. Xi is playing the "united China" card, and the external threat of a US-backed Taiwan. Sabre rattling works, as long as you don't actually need to use the sabre, at which point things become far more problematic.

So, Xi has plenty of reasons to ramp up the noise (which is all this is), but little need to act on the noise. He reinforces his credentials as the great leader who will (re)unite the country.

But recent Chinese history argues for the exercise of patience and planning for the achievement of national goals. So much better to be patient and gain everything they want, than to go to war with their biggest customer and risk isolation from much of the rest of the world. That wouldn’t be much of a plan.

Instead, China will be supportive of Russia’s aggression. Well, sort of. China is using "support" for Russia to balance against the West, and to ensure that China will have access to Russian energy assets going forward. China is not sending military aid, and is careful with how it breaches sanctions. Likewise, the US is careful to make sure there are ways for China to continue to do business with Russia and not be in flagrant breach of sanctions. So, individual Russians remain sanctioned, and any Chinese company that can be demonstrated to do business with those individuals will be at risk, if those companies do business with the US or western allies.

A strategic alternative

Taiwan has powerful friends because it is a democracy and because it has valuable trading assets. Remove or diminish the powerful friends and the situation and risk profile for re-acquisition changes. The major powers have repeatedly demonstrated that they answer calls for help far more quickly from countries that have things they want than from countries they don’t.

So, the biggest strategic lever that China has is its ability to out-technology Taiwan. Subvert the massive market share Taiwan has in highly-prized technology supplies and Taiwan’s position deteriorates quite rapidly. Taiwan doesn’t have a fall-back position in natural resources or strategic location to bolster its inherent strategic value.

China has been gobbling up natural resources critical to technology all around the world, China has some of the best (if not the best) robotics in the world. China has an enormous quantity of skilled people and available production capacity. It will take time and planning but China is rather good at patience and planning.

Summary

The costs of an invasion of Taiwan now would be far too high, for something that will be accomplished with time. But noise is needed for internal purposes, and American noise is needed to remind American allies that the Trump era is over and America is back. Nobody wants a new war, but there are perfectly good reasons to make plenty of noise. As Winston Churchill is reputed to have said, "Jaw Jaw is better than war war".

 

Sanctions, what are they good for?

Sanctions. We are told that the US and Europe have imposed the toughest sanctions to date on Russia and individual oligarchs. Maybe, but that might be hyperbole at best. There is this idea that with tough enough sanctions on individuals, those oligarchs may overthrow Putin or at a minimum dissuade people from going into the service of a state that, through sanctions, will limit their futures. This, of course, is rubbish and wishful thinking on the part of pundits. Indeed, overthrowing the state or leadership is not the purpose of sanctions.

Yes, the oligarchs will lose some of their wealth and will have difficulty travelling to their mega-yachts, but that is all. Most of them are smart enough to have engaged expensive and cunning firms whose speciality is hiding the money. “Where’s the money, Lebowski?” Well, the Dude has no idea where the money is, and neither do most governments. Certainly, there will be a few high profile examples of frozen assets and seized mega-yachts. Meanwhile, the vast majority of their assets will remain safe, protected by offshore companies with convoluted and obscured ownership structures, holding assets in trust for other obscure companies in different jurisdictions, with paper trails so complex they make the Camino de Santiago de Compostela look like an afternoon hike.

No, these people are not going to overthrow Putin, and most of them will not even get near enough to tell Putin what he needs to hear, because they certainly are not going to bite the hand that feeds them. If they do get close enough to actually talk to the great man himself, they will provide supportive comments and agree with his assessment of progress in Ukraine. When they are asked (if they are) about any impact of sanctions on them, their answers will be “nothing we cannot handle, for the greater good of Mother Russia (and the great leader, of course)”.

And if they do get near Putin, it will be because he has asked them to come to him, with the double objective of gauging their loyalty and promising them loot from Ukraine to replace any losses they have suffered from the sanctions. So sanctions on oligarchs will not push them to foment revolution or call for his ouster. 

The purpose of sanctions is to undermine an adversary's long-term productive capacity and reduce their capacity to engage in, or prevail in, a long term struggle. The American North triumphed over the South not because they had “God on their side”, everyone has God on their side, but because they could, and did, outproduce the South for years on end. Blockades reduced export revenues from cotton, thus reducing the amounts available to purchase the arms and ammunition that they could not produce. The blockades then also reduced the ability of the purchased arms and ammunition to reach the Southern shores and, therefore, the Southern armies.

The First World War (The “War to End All Wars”) eventually was won by the Allied Powers through a blockade and the eventual starvation of Germany (and the other Central Powers). The Second World War carried on the tradition of out-producing to victory. Effectively, the Allies played for time until the US officially entered the war. At that point, the result became inevitable.

Saddam Hussain was not toppled by sanctions, though the people of Iraq suffered horribly. Sanctions arrested and degraded his productive capacity to rebuild his armies after the Gulf War, and kept him and Iraq in a state of ongoing capacity degradation. The invasion of 2003 was, while a major war, a forgone conclusion. Iraq simply did not have, after many years of sanctions, the productive capacity to maintain its existing military, let alone modernise or expand its capabilities.

Today we see much the same dynamic as in the early stages of WWII, with the US providing arms and supplies while officially not being actively involved in the hostilities. There was little probability that the UK and even the USSR could have staved off a German victory without American factories and farms.

The US (and NATO allies) are not (yet) officially fighting in this war. But they are supplying arms and at least as important, detailed Intel, to Ukraine, enough it seems so far to keep them from capitulating. The US is considering the first “lend-lease” agreement since WWII, when American factories kept the UK and the Soviet Union in the war against Nazi Germany. It is difficult not to consider the irony of a new lend-lease programme specifically aimed at supporting a former Soviet Union country against another former Soviet Union country, and supporting a country accused of being “Nazi” against a country that is claiming to fight to “De-Nazify” the target of its aggression. 

Sanctions are a long-term tool designed to undermine the productive capacity of Russia over a multi-year period. Eventually, Russia will be “starved” to the negotiating table. If Russia can be fought to a standstill on the battlefield, still a very dubious proposition, then we will see the Iraq-ification of Russia, with a weakened military and a dramatically reduced capacity to maintain, let alone build new capability. Already, before the war, production of the T-14 Armata, Russia’s latest design and modernisation of the Main Battle Tank (MBT) concept, was delayed, in no small part due to the cost per unit. Post-Ukraine, Moscow is going to find it even more difficult to find the money to build sufficient T-14s to make a meaningful difference on the future battlefield.

In the case of Iraq, sanctions carve-outs were provided for humanitarian products such as medical supplies and food. Even then, the supplies were limited, and hundreds of thousands of Iraqis died due to the sanctions. But in terms of curtailing Hussain’s ability to rearm and build a larger military that could threaten his neighbours (again), the sanctions were effective. Where there had been a nuclear programme, there no longer was such a programme. The funding did not exist, and the inspections regime ensured that it would not be possible to restart such a programme. 

In Russia’s case, the sanctions will only be effective if enough of the international community participates, or if the US still has the economic and political leverage to enforce a sanctions regime. While both are debatable, the sanctions-busting nations will, other than China, probably be on the fringe of the international economic system. The threat of losing China's support may be one of the few remaining checks on Putin. He can probably get away with the small-scale use of chemical weapons. Battlefield nuclear weapons will be a bridge too far, and could end up with too much pressure being put on China by the rest of the international community. 

And that represents the core difference between Iraq, Germany and the American South; Russia is a major nuclear power. There will be no UN Inspections teams roaming around Russia any time in the near, or even moderate, future. Likewise, there will (I hope) be no use of the Russian nuclear arsenal against Ukraine or any other country. The use of tactical nuclear weapons to clear Ukrainian forces will create the conditions for a true blockade of Russia, and not the faux-blockade of sanctions. 

And as long as Putin does not use nuclear weapons on the battlefield (or beyond), then as the military and political leader, he will not be overthrown. And his KGB roots ensure that he is well-versed in using a security apparatus to identify and quell dissent. Oligarchs will be promised a share of the loot from Ukraine, and that, coupled with their well-honed skills of keeping on the right side of Putin (they have seen what happens when their peers have crossed Putin) will ensure that he is safe from any oligarch revolution.

So the sanctions are part of a long game, and while targeted at individuals as well as Russia collectively, no one should expect Putin to be overthrown, and no one should expect oligarchs to have difficulty enjoying a good meal in the restaurant of their choice (in sanction busting countries, of course).

Lockdown or Economy, a false choice

Have you heard people say that lockdowns are destroying economies? The argument is that we should open up, let the virus run its course, and build herd immunity (now that it seems only old people die, and that only a tiny percentage of overall cases result in death). Yet the assumptions seem to be that there is an either-or choice. The reality is much different. 

(Twitter: 27/12/2020 – the very voice and face of evil)

Locking down has enormous consequences for economic activity and mental health; this is true. This is balanced by a reduction in the mortality based on a lower or slower spread of the virus. A slower spread of the virus should ensure that the medical system, hopefully, can cater for the load that sick people place on the system. There are only so many hospital beds, and only so many medical professionals. Overload that system, and people will not receive required care, fatalities will rise, and the pool of available healthcare professionals will shrink as they are removed, hopefully temporarily, as they become sick and burned-out. There is also an element of trying to keep the sick-load down until effective interventions are available, and vaccines are available in volume. 

Remove lockdowns (or more accurately, do not impose lockdowns), and the benefits of fewer people becoming ill, dying, and overloading the medical system, will disappear. Now factor in the social impact of a visibly collapsing health system, mounting deaths and infection lurking around every corner and in every shop. There would be no need for a lockdown to stop people from flying. Bars could remain open, generating income for bar owners and employees. Shops and offices could stay open, and the economic activity would reduce unemployment and economic loss. Small investors leveraged to build businesses and futures would have these protected by an economic system that would continue apace, continuing employment and continuing the turnover required to service business (and personal) loans and build assets.

That is the argument. And it is dead wrong.

Mass illness and death have a way of seeping into the soul of a society, and fear is a dampener on economic activity. Trauma begets behaviours (and is caused by behaviours). So, tourism would come to a sudden stop. Likewise, while shops may remain open, economic activity in the shops would have come to a virtual halt. Yet wages would continue to be due, and as revenue collapsed and staff were fired, it would not be long before the markets themselves would begin to ‘price in’ the future impact of collapsing economic activity.

In the US, with a for-profit healthcare system linked to individual employment, the double threat of losing a job while at the same time being forced to work in environments that were clearly advantageous to the spread of the virus could not have anything other than a negative impact on workers' productivity. Worse than worker productivity, worker health will suffer through institutional failure to implement health-saving policies. The only policies that will matter will be wealth-saving policies. We’ve already seen the impact.

Earlier this month in Douglas County, one person who was sick went to work, and later tested positive for the coronavirus.

Within two weeks, that one action led to two subsequent outbreaks. The first killed at least seven people, nearly 20% of the county’s total COVID fatalities since the pandemic began. The second forced more than 300 people into quarantine.

Working from home would become a desirable option for workers (if they can), regardless of the ‘lockdown’ situation.

And the higher death rate among the elderly would drag workers away from the office for funerals and grieving, further impacting the social fabric. The higher death rate would also cause a national grieving significantly greater than the current numbing effect of the virus.

The question of “save lives or save the economy” is a false question. If society did not set out to save as many lives as possible, there would have been no economy. It would have stopped.  

Throughout the pandemic, modelling has included expected cases and mortality based on various levels of a lockdown or other social distancing measures. By early April deaths were climbing quickly, and projections looked pretty scary. The CDC’s site included its historical projections. Below is the 13 April 2020 projections of potential cumulative deaths in the US through July 2020, based on various levels of restrictions.

With the minimum “contact reduction” of 20%, deaths would have reached a range of between 130,000 to a horrifying 350,000. That range itself is horrifying, and reflects the dearth of information available at that time for modelling. It is scary to note that total US deaths passed 125,000 in June, not far off an extrapolation of the 40% contact reduction line above. 300,000 cumulative deaths in the US was reached in December, and current projections are for more than 420,000 deaths by inauguration day on 20 January 2021. 

Imagine 200,000 deaths by May 2020. Who would leave the house? Who would even consider going to work? Would there be an economy?

So while the modelling of total deaths took place, there was not an associated modelling of the potential impact on economic activity based on those deaths.  The comparison should have included not just vague statements about the health system being overloaded, but should have quantified the potential impact of health and economic activity.

The trauma of people being forced to continue to work in offices, factories and shops would be significant. The London Underground provides an example. Even under ‘normal circumstances’ the Tubes are packed, and people are surly and uncommunicative. There are unwritten behavioural rules, such as you don’t talk to others (or if you do, it is either boisterous groups, or quiet individual conversations) and do not make eye contact with strangers. Now imagine that in a pandemic in which everyone is expected to go to work, and the Tube is still crowded, but now there are people with fevers and coughs as well. 

In non-pandemic times, others are tolerated because an unwritten code says ‘we are all in this together’, as long as being together will not kill us. In normal times the unwell person on the train is requested to get off at the next stop and stay on the platform until they feel better or ask for assistance from station staff. 

In a pandemic, station staff are suddenly required to act as front-line medical responders. The infection will spread to them quickly, and the numbers of staff unavailable due to illness will rise. As the London Underground workforce is well unionised and protective, strike action should be expected and would effectively shut down the Underground. So as the pandemic spreads (in a no-lockdown situation) the number of train services will fall, cramming more people into fewer trains, increasing infection rates. 

At some stage, people will simply refuse to take the Tube.

That needs to be figured into the economics of the pandemic, and the ‘stay open’ arguments. Does NYC continue to function if New Yorkers refuse to take the Metro? Does the Metro still function is staff are out on strike or there are too few staff due to sickness?

Then consider the psychological effect of an infection rate climbing quickly, yet with a demonstrably deaf governmental and business community. If we (well, I) have been shocked by the level of conspiracy thinking that has happened with lockdowns, imaging the level of conspiracy thinking that would take place in an “everything should continue as normal” scenario.

I would imagine that business would be even more reviled, and all faith in government to protect people, or even to have the people’s interests in mind would evaporate. Covid-19 would be seen as a tool by which the government was ridding itself of the elderly to avoid pensions and healthcare obligations to the elderly, returning the economy to longer-term demographic stability. Kill off the old, and Social Security costs will fall, and taxes won’t need to rise, allowing more tax cuts for the rich.

And about the ‘rich’. Clearly, THEY are taking this seriously, and are able to distance and protect themselves and their families while the workers who create their wealth must continue to work, be exposed, get sick, and lose everything to the illness. The current anger (yes, there really is anger) at the wealth accumulation by higher earners and the extravagant increases in wealth at the very top through the pandemic will have repercussions. A ‘wealth tax’ cannot be ruled out.

Now imagine a ‘no-lockdown’ scenario, with mounting deaths, raging illness and (in the US in particular) the stripping of families of what meagre assets they have, impoverishment of the newly unemployed (after all, if there is no lockdown there should be little need for a stimulus package). Remember that even those who are benefiting from stimulus are seeing assets diminished and poverty approaching. Renters are falling behind with no associated equity assets to rely upon to provide financial depth. Homeowners are finding mortgage payments difficult or impossible to make. Banks will allow loans to extend only so long.

This is happening with stimulus and with lockdowns. Without lockdowns, the higher infection rates and higher death rates due to crippled health systems will exacerbate the economic problems.

Anti-lockdown advocates also make the spurious claims that ‘more people will die from suicide than will be saved by a lockdown’. This is complete bollocks. The suicide rate will be the same or higher, as large numbers of people are pushed into extreme poverty through economic collapse (which will happen simply because too many sick and dying people will mean too little shopping and too little working). In addition, those that suffer from depression due to the visible increase in illness all around them will have no services available to assist them, as those services will also be impacted by increased employee illness and absenteeism. Volunteers will become fewer as they deal with issues of their own at home and in their families.

Long-Covid

Missing from the discussion has been the economic impact of "Long-Covid" on more general health, and the psychology of returning to work in an "open economy". Long-Covid refers to those patients who continue, sometimes months later, to have Covid-19 related symptoms and in some cases, significant disabilities. 

A core element of a thriving economy is the confidence that the structures are in place to ensure that long-term aspirations will be achievable by "playing the game" of work hard, gain rewards, live a comfortable life. Curtail the probability of a quick recovery and a "back to normal", and expect an even slower recovery. That is the simple psychological impact that will hinder a full return to normality.

Then there is the associated economic impact of a potentially large cadre of individuals who will be unable to fully return to their pre-pandemic jobs and lives. They will "contribute" less to the economy, while likewise increasing the cost of the economy. Societies are expensive to run, and taking care of the weak and the sick to a standard that provides opportunity and enables a quality of life is part of that cost. It is the insurance policy that we all de facto pay for.

Long-Covid will result in untold individual and family suffering, and will be a drain on the economy that is so loved by those with assets. 

While the skyrocketing sickness and death rates in an "open economy" will effectively close that economy regardless of the wishes of politicians and oligarchs. Long-Covid will make create further drains slowing further the recovery of that much-worshipped economy.

Summary

“Open the economy, Now!” Lockdowns cause more harm than benefit. This is true, but only if there is no pandemic. When society is being ravaged by a highly contagious illness, the impact is far beyond the economic. And ignoring the pandemic in the pursuit of continued profit will backfire. More will die, and business will still fail, and prospects for a speedy recovery will wither. 

Hong Kong – THE Geopolitical Risk

What happens when Beijing loses patience with the Hong Kong demonstrators? What happens when Beijing decides ongoing trade / diplomatic conditions cannot get worse? What happens when Beijing decides it can ride out any storm? 

Hong Kong, and the ongoing protests, is now THE only geopolitical risk that matters.

22 years ago Governor Chris Patten presided over the lowering of the flag of the United Kingdom and the raising of the flag of the Special Administrative Region of Hong Kong. The 1st of July 1997 saw the end of British rule over Hong Kong, and a promise of a 50-year transition under the “One Country, Two Systems” principle. 

“In accordance with the "One country, two systems" principle agreed between the United Kingdom and the People's Republic of China, the socialist system of the People's Republic of China would not be practised in the Hong Kong Special Administrative Region (HKSAR), and Hong Kong's previous capitalist system and its way of life would remain unchanged for a period of 50 years. This would have left Hong Kong unchanged until 2047.”

Fairly obviously that was never going to happen, and the underlying rationale for agreement to the principle was to avoid the collapse of the economic golden goose and to ease the way for a potential peaceful unification with Taiwan. Well, the golden goose has done its part, but Taiwan has not budged. Furthermore, China itself was able to assimilate Hong Kong while at the same time expanding its own economy to the point that Hong Kong is no longer the entry to China. 

Fundamentally Hong Kong has become just another Chinese city, albeit a separate financial centre and vibrant port. We are continually told that the Chinese are masters at the long game and, given the current situation in Hong Kong, and the increasingly uncertain global economic status, that long game could go either way.  If they want to preserve the economic benefits, they play long; if a unified China is the prize, then it is possible that the current global situation may give Beijing confidence that with global attention diverted in so many areas including Iran, this may be their opportunity. 

So why is this THE Geopolitical Risk?

Yes, Iran is a major geopolitical risk, but nothing compared to Hong Kong right now. Iran provides focus and noise, being at the crossroads (and chokepoint) of global oil traffic. Yet the world has been through a "tanker war" once already during the Iran-Iraq war of the 1980s. 

Over the past two and a half decades the West has tied itself economically to China, to an extent that is simply frightening. Were it done as a national policy with alternative plans and capacity already in place and maintained, the West would, in theory, be able to recover quickly from the isolation that a true economic war or sanctions regime would entail. Yet across the developed world, critical national capacity and capability have been outsourced to Chinese companies and/or had production itself moved to China.


The steel industry is a good example. In search of cheaper steel (and cleaner air at home), the West has happily watched and contributed to the growth of the Chinese steel industry. Currently, over 50% of world steel production is in China. Chinese overproduction and dumping of steel on global markets has further undermined Western economies, closed steel mills and slowly built greater reliance on China. This capacity does not return overnight.

Image from Worldsteel.org

In the area of microchip production, China has set out to meet all domestic needs as well as positioning itself to be able to economically undercut and dominate international markets. In July 2017, the Wall Street Journal stated:

The U.S. views China as its biggest semiconductor challenge since Japan in the late 1980s. The U.S. triumphed then through trade sanctions and technological advances. Japanese firms couldn’t match U.S. microprocessor technology, which powered the personal computer revolution, and fell behind South Korea in low-margin memory chips.

China has advantages Japan didn’t. It is the world’s biggest chip market, consuming 58.5% of the global $354 billion semiconductor sales in 2015 according to PricewaterhouseCoopers LLP. That gives Beijing power to discriminate, if it wants, against overseas suppliers.

With these two sectors, China has positioned itself to be able to survive any attempts to isolate it or to economically undermine it. More importantly, China has positioned itself to be able to thwart any attempts at a sanctions regime, knowing that sanctions will hurt the sectioning countries more than they will hurt China. 

Imagine the impact on global trade and development if access to steel and microchips were to be curtailed or limited by sanctions or political risk?

No one should be fooled by the promise of 50 years of limited interference. Beijing has been there all along, and if Beijing has not run out of patience, it will very soon. It is also realistic to expect that in the 22 years since handover there would be changes, and there have been.

The protests started over the extradition law that would have allowed the Hong Kong government to extradite individuals to be tried in China proper. The protests managed to force the Hong Kong government to back down. All well and good, to that point.

It was time for the protesters to go back to university, back to work, and back home. A little local difference that we can all learn from.

But having forced the local government to back down, like so many “protest” movements, they did not see that their primary goal was all that they could actually gain in concessions. They are pushing further, and they may have pushed too far. The current general strike and protest actions such as blocking the subways, roads, and painting over street lights to block traffic are bad enough. To call for “revolution” will probably push Beijing over the line.

“Restore Hong Kong. Revolution of our time,” protesters chanted in a demonstration on Monday at a temple in Wong Tai Sin, a working-class neighborhood that was the site of weekend clashes in which enraged residents went into the streets in flip-flops and shorts to drive out police.

In a broader geopolitical context, Hong Kong is now a proxy that is never should have been, and that it really does not want to be. It is a bastion of Western Liberalism deep in the heart of China. Protests are acceptable when they are local only. But when China is facing off against the United States, loyalties are being examined. 

The breakdown in relations with the West (the United States anyway) make any overt and internationally extravagant protest a form of disloyalty, and that is not acceptable to Beijing. 

There have been reports of Chinese forces (vague reports) on the Chinese side of the border between China and Hong Kong. I expect we will see more such reports. It will be interesting to see what units are included, both by name and by type of units. Those forces will not stay there indefinitely.

Late last week (1st August) the Hong Kong element of the PLA (People’s Liberation Army) released a video showing the unit practising anti-riot exercises “showing its soldiers dressed in riot gear and riding in tanks in scenes that bore striking similarities to the Tiananmen Square protests in 1989”. It is not possible to see this as anything other than a warning that what was done 31 years ago, to protect China and more importantly the Communist Party, will be visited on the people of Hong Kong if they continue to protest.

With no end in sight to the protests, Beijing may well have come to the conclusion that now is the time to end two systems. “The PLA can help restore peace in Hong Kong if necessary: Hong Kong lawmaker Junius Ho Kwan-yiu”. It might not be the 27th Group Army (responsible for Tiananmen Square, and disbanded in 2017), but that will not stop them from being equally brutal and effective.

If they have, Hong Kong will be crushed, and we will see an impotent West rush to the UN Security Council fully aware that China will veto any resolution.

Tiananmen Square may be visited on all of Hong Kong. If this happens, the bloodshed will be terrible, and it will be broadcast to the world. The outrage will be both real and impotent. But within China, the message will be two-fold; Hong Kong is now fully integrated into China, and internal dissent will be tolerated only as long as the role of the Communist Party is not questioned.

The West (and Beijing) will discover if it is possible to engage in urban warfare in a modern mega-city. What better place and time to test doctrine, in a place where they control all physical access, and where, eventually, they can control all communications (though that one will take some time). Beijing will also be watching closely to see what lessons they can learn in relation to Taiwan. 

It will not be fast, but it will be effective. Professionals will be "spared" though families may be invited to visit the countryside. After all, the financial systems and global trade must continue.

By the time the international community is able to respond meaningfully, Hong Kong will be subjugated. China (and the rest of the world) knows full well that Hong Kong is not Kuwait, and Xi Jinping is not Saddam. The United States will not be pushing the PLA out of Hong Kong.

What will happen to global markets? From China’s perspective, nothing that they are not willing to allow anyway, in their trade fight with the United States. In Asia “Face” is all-important, and to allow insults of the leader and the country is to lose face.

So anyone who thinks that China will not “invade” and “pacify” Hong Kong should be careful with their assumptions. Geopolitical risk is exceptionally high, and unless both China and the United States have a way to convince the protesters to end their protests and calm their slogans, there will be major trouble.

China has positioned itself to be able to survive any sanctions regime, or at least to impose a greater cost on sanctioning countries. This limits the ability to use threats of sanctions to influence China. This also means that China may feel that they will be given a "free hand" to suppress Hong Kong. 

There is a very significant danger of miscalculation. We already know that words alone will move markets. A Chinese "Tiananmen" style suppression of Hong Kong could generate global market chaos.

Today, next to China and Hong Kong, all other geopolitical risk pales.