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China Uses the World Trade Organization to Legitimize Its State and Chinese Companies’ Anti-Competitive Activities

ArmchairTechInvestor, July 31, 2018, by Brad Peery

Book-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy. Expected publishing date: September 1, 2018
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com, China vs. U.S. Issues
www.ArmchairPolitician.US, Trump Political Achievements

This is the first of three ArmchairTechInvestor posts examining trade and defense issues the U.S. has with the World Trade Organization, the EU and NATO.

China World Trade Organization History
China joined the World Trade Organization (WTO) in 2001. An old system, the Catalogue for Guiding Foreign Investment in Industries remains in place. The Catalogue, revised most recently in 2015, divides China’s economy into four categories for foreign investment purposes: prohibited; restricted; permitted; and, encouraged.

U.S.-World Trade Organization (WTO) Issues
The WTO was established to facilitate worldwide trade and has 164 members. China became a member in 2001. At that time China was categorized as an emerging country. Today, they are clearly no longer in that category, but still have protections accorded to such countries. President Trump has taken the position that the WTO is lethargic in addressing current issues. Trump has articulated issues that do not cover the whole range of free trade abuses, particularly by China. His stated issues are:
• A disputed settlement process;
o He has criticized the body’s dispute settlement process and asserted the right to ignore rulings that it believes violate U.S. sovereignty;
• Institute penalties for dumping;
o China, has steel and aluminum industries that are state-sponsored. China sits on a massive supply of these goods, and its trading partners have accused it of undercutting prices;
• Improve the dispute mechanism system;
o The WTO has been criticized by member nations for being slow to resolve disputes, a problem the organization has acknowledged. A dispute between the EU and China resolved last year took seven years to litigate. Failure to come to timely decisions allows potentially illegal trade practices to continue for years, critics say. Trump could press the WTO to add resources to the dispute process, and to put time limits on decisions.

Additional China WTO issues:
• Intellectual property theft, with no legal means of addressing the issues;
• Non-tariff barriers and subsidies have proliferated;
• Loans are given by state-owned banks on easy terms with low interest rates
• Use is made of the 2008 Anti-Monopoly Law to force companies that have substantial market share possibilities to transfer of intellectual property to enter the China market.
All of the above abuses violate WTO agreements, but companies that press their case at the WTO are being threatened with denial of access to the China market if they file an action at the WTO.

China-U.S. Technology War
The technological war with China has begun. It remains to be seen whether U.S. companies can do business in China without giving away their technology. The U.S. is pushing back on the Chinese theft of the intellectual property of U.S. companies. By 2018, a growing number of American companies “have complained that China has pressured them into sharing their technology ways”.

China’s Internet Monopoly
U.S. and other foreign tech companies are severely restricted in accessing the China market. The restrictions vary by sector, but the most onerous restrictions are on providing Internet access to their databases and search services to their customers.

Only three Chinese companies, Alibaba Group Holding, Baidu and Tencent Holdings, are allowed to directly access the Internet in mainland China. All foreign companies must use these companies to access the Internet, providing Chinese companies with an Internet monopoly.

China’s Internet Domination-Electric Vehicles
Alibaba Group Holding is one of three companies, including Tencent Holdings, and Baidu that dominate e-commerce, social media, and mobile payments. With China moving toward what could be mostly an all-electric automobile market by 2030, providing a variety of subscription services to vehicles is viewed as an extremely large market opportunity in China, but also perhaps elsewhere. For example, Renault is forecasting that it could achieve a fivefold increase in revenues by 2023 as a result of its ability to sell automobiles on Alibaba’s platform.

OK-China Companies-U.S. Security Threats
The U.S. is finally standing up to an aggressive China by confronting large Chinese companies that are trying to enter the U.S. market, and could threaten U.S. security. Companies such as ZTE and Huawei are finally being restricted because of the business they do in the U.S. could provide a Chinese government security threat.

China-Semiconductor Industry Domination Objectives
**China announced plans to significantly improve the competitiveness of its state and Chinese semiconductor companies when it launched a $21.8 billion semiconductor development fund in 2014. A U.S. Trade Representative’s report on March 22, 2018 declared the 2014 fund as an effort by government agencies and state-owned companies to meet Chinese national strategic objectives.

China has also announced a new fund that could total about $47.4 billion. Important semiconductor industry sectors it will support are likely to include microprocessors and graphic processors. The objective is to reduce China’s dependence on foreign semiconductor products from companies such as Qualcomm, IBM and Nvidia.
**China Plans Fund to Boost Semiconductors, Wall Street Journal, By Yoko Kubota, May 5, 2015

Qualcomm Is Being Attacked by China
In 2013, Chinese government officials invaded the Beijing and Shanghai offices of Qualcomm. After a 15-month investigation, regulators saddled the company with a $975 million fine. In addition to the fine, Qualcomm:
• Was branded a monopoly;
• Was forced to reduce prices;
• Had to move more of its technical manufacturing to China;
• And, help boost the technological abilities of Chinese companies.

Qualcomm, a worldwide leader in semiconductor technology, was threatened by an unfriendly takeover by Broadcom, a Singapore-based company. The U.S. blocked the acquisition on national security grounds. There were several concerns. The acquisition of Qualcomm could have reduced U.S. superiority in semiconductors. It could also have reduced the U.S. lead in next generation 5G broadband networks. Qualcomm has a large business in China, and China has threatened to block Qualcomm has made an offer to acquire NXP Semiconductors, an important part of its growth strategy. The acquisition has been stalled by an antitrust review. In early May, 2018, “Chinese officials said that Qualcomm will have to make more concessions to compensate for the market power it would enjoy after completing the deal, without providing details.”

China has used the national security threat issue as a way to protect Chinese companies. China is still considered to be an emerging country under the World Trade Organization rules, showing how antiquated is the WTO.
*Qualcomm May Be Collateral Damage in a U.S.-China Trade War

U.S. Automobile Companies in China
U.S. Automobile companies are effectively banned from competing in China. U.S. Automobiles are taxed at a rate of 25%, that effectively makes U.S. produced automobiles uncompetitive in China. There are also Chinese policies that are anticompetitive, even for companies that want to establish manufacturing plants in China.

China Automobiles
Encouraged industries, make up about 75% of the Catalogue, but automobiles are an example of how China protects certain local companies. China views automobiles as a strategic industry, because it is important to China’s development of high tech manufacturing. In addition to the 25% tariff on imported automobiles, any company wishing to manufacture cars in China must work with a Chinese joint venture partner. This requirement can lead to those joint venture companies stealing the intellectual property of their partners. China has said it may ease auto industry regulations within 8 years. Tesla has fought the intellectual issue by setting up a manufacturing plant in Singapore and paying a 25% tariff to sell vehicles manufactured there in the China mainland. Sales of imported cars were 4%, of the 24.4 million vehicles produced in 2016, about the same as 15 years earlier.

China-Economy-Growth and U.S. Trade
China’s growth rate is targeted by the government at about 6.5% in 2018.
• Substantial reorganization of the economy is occurring;
• Risky lending practices are being addressed;
• There is trade tension with the U.S. based upon tariffs the U.S. has adopted on steel and aluminum;
• Ignored in these discussions are often the tariffs China places on imported goods, such as a 25% tariff on foreign manufactured automobiles;
• Also ignored are restrictions China places on goods it considers to be vital to its national defense.
o This is allowed by the WTO under obsolete designations given to China in the early 2000s.

U.S.-World Trade Organization (WTO) Issues
The WTO was established to facilitate worldwide trade and has 164 members. China became a member in 2001. At that time China was categorized as an emerging country. Today, they are clearly no longer in that category, but still have protections accorded to such countries. President Trump has taken the position that the WTO is lethargic in addressing current issues. Trump has articulated issues that do not cover the whole range of free trade abuses, particularly by China. His stated issues are:
• A disputed settlement process;
o He has criticized the body’s dispute settlement process and asserted the right to ignore rulings that it believes violate U.S. sovereignty;
• Institute penalties for dumping;
o China, has steel and aluminum industries that are state-sponsored. China sits on a massive supply of these goods, and its trading partners have accused it of undercutting prices;
• Improve the dispute mechanism system;
o The WTO has been criticized by member nations for being slow to resolve disputes, a problem the organization has acknowledged. A dispute between the EU and China resolved last year took seven years to litigate. Failure to come to timely decisions allows potentially illegal trade practices to continue for years, critics say. Trump could press the WTO to add resources to the dispute process, and to put time limits on decisions.

Additional China WTO issues:
• Intellectual property theft, with no legal means of addressing the issues;
• Non-tariff barriers and subsidies have proliferated;
• Loans are given by state-owned banks on easy terms with low interest rates
• Use is made of the 2008 Anti-Monopoly Law to force companies that have substantial market share possibilities to transfer of intellectual property to enter the China market.
All of the above abuses violate WTO agreements, but companies that press their case at the WTO are being threatened with denial of access to the China market if they file an action at the WTO.

China Trade-World Trade Organization (WTO)
China has used the national security threat issue as a way to protect Chinese companies. China was admitted to the WTO in 2002 and is still considered to be an emerging country under the World Trade Organization rules, showing how antiquated is the WTO. The WTO’s agreements are outdated, and lawsuits can take a very long time.
*Tackling China’s Protectionism, Wall Street Journal Editorial, March 20, 2018

India is an Extremely Important U.S. Ally. How Does Pakistan Affect the U.S.-India Relationship?

ArmchairTechInvestor, July 25, 2018, by Brad Peery

Book-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy. Expected publishing date: September 1, 2018
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com, China vs. U.S. Issues
www.ArmchairPolitician.US, Trump Political Achievements

This is the first of three ArmchairTechInvestor posts examining U.S.-Indian involvement. Pakistan is an important part of that relationship. Particularly important is China, particularly their One Belt, One Road Initiative.

Pakistan
• Pakistan has a very close relationship with China and:
o Provides terrorist safe havens for attacks in Afghanistan and India, including on U.S. interests;
o The Pakistan military is unlikely to have a lasting effect on restraining terrorists;
o It will maintain its terrorist ties and restrict its cooperation with the U.S.; and
o It will continue its strong ties to China, including the building of a harbor as part of the One Belt, One Road Initiative.

• One of the six major trading routes for China’s One Belt, One Road (OBOR) Initiative goes from southwestern China through Pakistan. An important element of the Pakistan route is the building of Gwandar Port. China runs this port and it could be an important naval base for an expanding Chinese military. However, there are many more implications of the $62 billion China-Pakistan OBOR plan. Not included in that plan are $12 billion of Chinese commmercial power plant financings and $3 billion of Chinese bank emergency financing to support Pakistan’s foreign-exchange reserves. These two elements plus $10 billion of infrastructure funding takes total Chinese financing to $25 billion, all for power and transportation infrastructure projects.
• China’s One Belt, One Road OBOR Initiative, the China-Pakistan Economic Corridor, has put Pakistan in a precarious financial position.
o The largest part of the Initiative is to build power plants and Pakistan has fallen behind in making payments for the plants.
o According to the Wall Street Journal, a new Pakistani government could seek an International Monetary Fund (IMF) bailout of about $10 billion before the end of 2018.
• An IMF bailout of Pakistan could have serious implications:
o The IMF would undoubtedly require restrictions on spending and borrowing, including the Pakistan OBOR Initiative;
o The IMF is funded by western countries, with the U.S. being the largest contributor. This could put the U.S. in a strong oversight position of Chinese plans in Pakistan. U.S. officials have called this “debt-trap diplomacy” by China to the detriment of their about 70 country partners on the OBOR land and maritime trade routes.
• An additional option for Pakistan could be a Chinese bank bailout of the country, but a lack of financial opportunities for the infrastructure projects could make this difficult to achieve.
*China Denies Infrastructure Plan Causing Debt Crisis in Pakistan, Wall Street Journal, by Jeremy Page and Saeed Shah, July 25, 2018
**China’s Global Building Spree Hits Trouble in Pakistan, Wall Street Journal, by Jeremy Page and Saeed Shah, July 23, 2018

In South Asia, development of Hambantota port in Sri Lanka and Gwadar port in Pakistan have been fueling tensions in the Indian Ocean region. Subsequently, the strategic importance of the Andaman & Nicobar Islands will increase for India’s security and maintenance of peace and stability in the region.

U.S. Involvement
To strengthen the Asia region, the U.S. is trying to develop a relationship between India and Japan to fight China’s aggressive actions in the South China Seas. The U.S. is also trying to involve India in Afghanistan as a participant in bringing stability to Afghanistan, and fighting Pakistan’s terrorist support.
*U.S. India Agree to Bolster Security, Wall Street Journal, by Niharika Mandhana, October 25, 2017

Kashhmir
With regard to terrorism, the U.S. has sanctioned Mohammad Yusuf Shah, the head of Hizb-ul-Mujahideen, a terrorist group that India is fighting in the Kashmir, where India is also facing Pakistan.

Afghanistan
In early 2018, the U.S. was downgrading its relationship with Pakistan and increasing its support for Afghanistan. Mr. Modi highlighted that India has played an important role in rebuilding Afghanistan.

Saudi Arabia
• Trump has developed strong relationships with Saudi Arabia, and its Arab partner countries to confront Iranian and Russian expansion in the Middle East.
• The U.S. relationship with Saudi Arabia and its Arab partner countries could be very helpful to India:
o Terrorism is an issue for India, particularly because of the animosity between India and Pakistan along the Indian border.

China’s OBOR Initiatives-Pakistan-India Issues
China’s OBOR Initiatives are challenging India’s territorial claims in Kashmir. The China-Pakistan Economic Corridor goes through territory in Kashmir that Pakistan controls and India claims. India believes that China has abandoned its neutral stance and sided with Pakistan. “China’s failure to address Indian concerns was the initial cause of New Delhi’s reluctance to join the One Belt, One Road Initiative. China’s unilateral implementation of its vision for the OBOR Initiative over Indian objections has increased bilateral tensions.

India has additional concerns in the Indian Ocean. “China has invested in port facilities in states surrounding India including Pakistan, Myanmar and Sri Lanka. Investment in these ports has given rise to the “string of pearls” theory, which speculates that China will leverage these facilities for military use. When viewed on a map, these maritime investments represent the encirclement of India at sea. China docked attack submarines at a Chinese-constructed port in Sri Lanka. This indicates a militarization of these OBOR-related investments in India’s island neighbor. Naval encirclement is a significant security concern as India depends upon sea transport for about 90 percent of its international trade.

Pakistan-India Issues
India has a population greater than China. China and India are unfriendly toward each other. India and Pakistan are also territorial rivals, with Pakistan being backed by China, and conducting terrorist raids on India. The U.S. is confronting Pakistan because of the fact that Pakistan is financing terrorism in Afghanistan, and harboring terrorists. India can provide a partnership with the U.S. that will confront both Pakistan and China, and provide a joint relationship as a foil to China’s territorial ambitions, particularly in the Indian Ocean.

Iran
With regard to the Iran relationship, India has renewed its financial relationship with Iran following the signing of the Iran Nuclear Agreement. It has a port project called Chabahar. India sees the project as a possible deterrence to the development of Pakistan’s port of Gwadar, which is now fully run by China. India, Afghanistan and Iran signed a trilateral trade treaty for developing the Chabahar port project and beyond. Also, Iran has invited China and Pakistan to participate in the Chabahar Port project. India’s objectives in developing the port project appear to be severely compromised. Pakistan and China seem likely to be involved in the project.

Russia
India has a strong relationship with Russia. In October, 2017, they held a joint military exercise with Russia that included India’s army, navy and air force. This was the first such military drill with Russia.

Russia has managed to maintain security partnerships with both India and Pakistan. At about the same time India and Russia held their military drills, Russia announced that Pakistan held negotiations with Russia on the purchase of S-35 warplanes. This is part of a broader Russian strategy in South Asia that showcases Russia’s increasing power in the international community. It also highlights Russia’s interest in directly competing with the United States and China for influence in the Asia-Pacific region.

The relationships of Russia and Pakistan are based upon joint efforts to combat international terrorism in Asia. To convince the Indian government of Moscow’s commitment to cracking down on facilitators of terrorism, Russian President Vladimir Putin supported India’s counter-terrorism raid in Kashmir after the 2016 Uri attacks, and openly praised India’s counter-terrorism policies during his meeting with President Modi in June, 2017.

Russian Mediation in Kashmir
An additional Russian objective is to serve as a mediator to both India and Pakistan to address their issues in Kashmir. This seems to be of more interest to Pakistan than to India. However, from Russia’s standpoint, they have stayed unbiased in dealing with differences between India and Pakistan.

Russia has even sponsored peace talks in Afghanistan to solve their terrorist problems. Moscow has given Pakistan a prominent diplomatic profile in the peace talks it has hosted on the Afghanistan crisis. This has served to convince Pakistan that it is impartial in its relationships with both India and Pakistan. This contrasts with the U.S. approach of supporting Afghanistan, and criticizing Pakistan for supporting terrorists, and allowing them to have a safe haven in Pakistan.

China Has Underway A One Belt, One Road (OBOR) Initiative To Invest In 70 Countries To Improve Its Financial, Trade And Military Relationships: This Is A Major Challenge For The U.S.

ArmchairTechInvestor, July 17, 2018, by Brad Peery

Book-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy. Expected publishing date: September 1, 2018
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com, China vs. U.S. Issues
www.ArmchairPolitician.US, Trump Political Achievements

China Trade-One Belt, One Road Initiative
This blog is a final portion of the Conclusions Chapter of the China vs. U.S. A Police State vs. a democracy book. China has underway a massive project, One Belt, One Road, to build a land and sea network connecting Europe, Asia, the Middle East and Africa. China is planning to spend as much as $4-$8 trillion on a trade route infrastructure project in about 70 countries in Africa, Asia, the Middle East and Europe. This will include spending on ports, roads, railways, airports, power plants, telecommunications, and other infrastructure, including gas and oil pipelines. The network has been designed by and implemented by China. The countries on the network will individually be nodes on the network. There six economic corridors on the network. China says that the infrastructure is for the purpose of enabling economic growth in some of China’s surrounding countries.

The trade deficit with China appears likely to remain above $360 billion per year, despite President Trump’s efforts to reduce it. Over 10 years such a trade deficit could be viewed as providing financing for 90% of a $4 billion OBOR intitiative by China.

The corridors are the:
• China-Indochina Peninsula Economic Corridor (CICPEC);
• China-Mongolia-Russia Economic Corridor (CMREC);
• China Pakistan-Economic Corridor (CPEC);
• Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC)
• China-Central and West Asia Economic Corridor (CCWAEC); and
• New Eurasian Land Bridge (NELB).

China-Indochina Peninsula Economic Corridor (CICPEC)
The Indochina Peninsula Economic Corridor starts in Kunming, China and has two corridors that run south from China through Vietnam, Laos, Thailand and Cambodia. There is also a western corridor that runs west in China from Kunming, to Myanmar and then south to link up with an East-West Corridor that goes through Thailand and Laos. In the south, there is also a second east-west corridor that links up with the north-south corridors.

The coastal states in Southeast Asia such as Vietnam, Cambodia, the Philippines, Thailand, Malaysia, Myanmar, Brunei, Singapore and Indonesia and the only landlocked country Laos would take part in the OBOR to build highways, railways and sea ports to realize the China-Indochina Peninsula Economic Corridor and the 21st Century Maritime Silk Road. However, Myanmar, Thailand, Cambodia, Malaysia and Vietnam would provide nodes connecting the Belt and Road. The Belt stands for the continental sections of the Silk Road while the Road is the maritime domain of the Silk Road.

China-Mongolia-Russia Economic Corridor (CMREC)
The Russia-Mongolia-China Road Corridor runs from Tianjin in China north through Mongolia to Ulan Ude in Russia. The corridor is supposed to open in 2018. This is the development of a central railway corridor, organizing transit trucking activities on the Tianjin-Ulaan Baatar-Ulan-Ude route and paving a road along this route. “Chinese Foreign Minister Wang Yi, said construction of a transport corridor linking the three countries helps support economic development, and encourages Mongolia’s participation in international affairs.”

China Pakistan-Economic Corridor (CPEC)
The China-Pakistan economic corridor is being established to develop modern infrastructure projects that include roads, railroads and power plants. A 250-mile Multan-Sukkur section of the Peshawar-Karachi Motorway began construction in 2016 for completion in August 2019.

Gwadar Port in Pakistan is financed and operated by China Overseas Port Holding Co., It started operations in November 2016. Located at the mouth of the Persian Gulf, it is close to the Straits of Hormuz, and the Gwadar Port provides China with an important shipping route to the Middle East. In April 2017, China provided a loan of $1.2 billion to Pakistan to help it with a currency crisis. The Port city population is mostly Chinese and represents an example of how China can expand its operations beyond China using the OBOR initiative. This is particularly important in port cities that expand China’s maritime military footprint.

Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC)
China is setting up an economic corridors in alliance with other countries – with one covering Bangladesh, India and Myanmar (i.e. the BCIM Economic Corridor). The Corridor will link India’s Kolkata with China’s Kunming, with Myanmar’s Mandalay and Bangladesh’s Dhaka among the key points.” The Port of Dhaka is a major river port on the Buriganga River. The Chinese government has pledged to finance multi-billion infrastructure projects in Bangladesh.

China-Central and West Asia Economic Corridor (CCWAEC)
This is one of the main axes of the new Silk Road; it connects the Chinese province of Xinjiang to the Mediterranean Sea, through Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Iran and Turkey. It follows the ancient Silk Route. This initiative will be completed by bilateral cooperation agreements between China and Central Asia states. This corridor aims to better connect all the regional economies to China but also to Europe and thus offers a new intercontinental communication network that will open up Central Asian states. This corridor requires the construction of numerous transportation and energy infrastructures from the Middle East to China. It is supplemented by various measures aiming at increasing trade among all states involved in the OBOR.

New Eurasian Land Bridge (NELB)
The New Eurasian Land Bridge runs from northern China through Russia to Europe.

To stimulate investment with an aim to diversify its economy, the Russian government is providing a wide array of incentives for investors developing new product, technology in the energy efficiency, nuclear engineering, space technology, medicine and IT industries. Other key sectors for development include pharmaceutical and medical, real estate, innovations and technology, infrastructure, aluminum, iron and steel, lead, platinum-group metals, precious metals, nickel, copper, zinc, coal, telecommunications, transportation, agriculture and food and gas.”

The Ukraine crisis made Russia embrace the OBOR Initiative by:
• Beginning confrontation with the West and Russia’s deteriorating economy due to U.S.-led sanctions and falling oil prices left Moscow little choice;
• Without Ukraine, the second-largest post-Soviet economy and a market of about 44 million people, Moscow’s hopes to create an integrated bloc that would be on par with the European Union and other centers of global economic power were essentially dashed;
• Lacking a market of sufficient size to create its own viable geo-economic area, Russia was left with the only option of moving into another nation’s economic orbit;
• Russia joined the China-controlled Asian Infrastructure Investment Bank in March 2015; but
• The most decisive step came a few months later in May 2015, when Xi and Russian President Vladimir Putin met in Moscow and pledged to work toward a “link-up” between Russia’s Eurasian Economic Union (EEU) and China’s OBOR Initiative.

China’s OBOR Involvement
China is providing financing in the form of high interest loans. China is being accused by many of using the loans to put many small countries in default, and to thereby take over the projects that they have financed.

With many of the projects being port development, these joint ventures with the countries could allow China to expand their naval presence throughout Asia, Africa and the Middle East.

The U.S. Is Ahead Of China In Developing Space Technology, But Is Being Challenged In Other Defense Areas

ArmchairTechInvestor, July 17, 2018, by Brad Peery

Book-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy. Expected publishing date: September 1, 2018
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com, China vs. U.S. Issues
www.ArmchairPolitician.US, Trump Political Achievements

Worldwide threats to the U.S. are increasing from China, Russia, ISIS, Iran and North Korea. President Trump has achieved defense spending increases for fiscal 2018 that will only begin to restore the U.S. defenses to the level they were at in 2009. It will take a decade or more of defense spending increases to restore U.S. military capabilities.

China’s Defense Budget
*China’s defense budget is expected to reach $173 billion in 2018, compared to $716 billion expected for the U.S. in 2019. 2018’s defense budget comes to about 1.3% of China’s 2017 GDP of $12.4 trillion. Analysts don’t consider China’s publicly announced defense spending to be entirely accurate, since defense equipment projects account for a significant amount of “off book” expenditures.

China is nearing completion of a reduction of its military forces by 300,000, taking the total to 2 million and still has the largest military in the world.

Shanghai military expert Ni Lexiong said China was seeking to avoid a full-on arms race based on quantity of weapons, choosing instead to invest in high-tech systems and training. China’s range of weapons is impressive. They include:
• A second aircraft carrier they are about to launch;
• Stealth fighters they are integrating into their air force;
• An array of advanced missiles that are long-range and able to attack sea and air targets;
• In April 2017, it launched a 50,000-ton carrier built entirely on its own.
• A nuclear-powered attack submarine equipped is considered only slightly inferior to the U.S. Navy’s mainstay Los Angeles class boats;
• Their guided-missile destroyers are at the forefront of China’s naval technology;
o Such vessels stand to alter the balance of power in the Indo-Pacific, where the U.S. Navy has long been dominant, and regional rivals such as Japan and India are stepping up their presence.
o Most navy ships already have anti-ship cruise missiles, with longer ranges than those of their U.S. counterparts.
• China has begun equipping combat units with a stealth fighter jet that is competitive with fifth-generation jets such as the U.S. F-22 and F-35; and
• China’s missile technology is also impressive.

All three of China’s sea forces, the navy, coast guard and maritime militia, are the largest of their types by number of ships, allowing them to “maintain presence and influence in vital seas,” according to Andrew S. Erickson of the U.S. Naval War College’s China Maritime Studies Institute.

China has a wide range of both defensive and offensive weapons systems. Their navy is predicated on having a large number of smaller ships. The U.S. is moving its navy in that direction. The U.S. has a huge superiority in aircraft carriers, which serves the U.S. well in operating in Asia, and somewhat offsets China’s land-based aircraft presence.

The U.S. is also far superior in its space-based weapons systems being developed by NASA, and a range of commercial competitors, such as Space-X. U.S. space technology allows the Space Station to be accessed, and Space-X has plans for a Mars mission that it hopes will be developed by 2024.

Space-based weapons systems will become an important element of future U.S. defense capabilities.

The 2018 U.S. Defense Budget
The U.S. faces a range of defense challenges, including China, ISIS, Iran, Russia, and North Korea. President Trump has indicated that defense spending will increase, with nuclear weapons, fighter aircraft, and the U.S. Navy having been mentioned.

A good way to look at defense spending is as a percentage of Gross Domestic Product (GDP). was forecasted to be 4.4% of GDP in fiscal 2017.

U.S. Defense-Nuclear Weapons-China, Russia and the U.S.
Two initiatives being pursued by the Trump administration are:
• To upgrade U.S. missile systems, including the Minuteman system, and nuclear systems such as our nuclear submarines;
• And, upgrade U.S. missile defense systems. In early March 2018, Russia announced a new missile capability that they claim makes their nuclear missiles undetectable by U.S. missile defense systems.
This appears to have been posturing by Russia prior to the reelection of Putin.

Two Nuclear Issues Are Upgrading U.S Current Nuclear Missile And Missile Defense Systems
Two initiatives being pursued by the Trump administration are:
• To upgrade our missile systems, including the Minuteman system, and nuclear systems such as our nuclear submarines; and,
• Upgrade U.S. missile defense systems;
o In early 2018, President Putin of Russia made the statement that Russia has nuclear missiles that can evade U.S. missile defense systems;

Systems such as the Aegis Missile Defense at sea, and the Terminal High Altitude Area Defense (THAAD) on land, are the two systems the may be able to destroy missiles that don’t go into space.

North Korea’s testing of intercontinental ballistic missiles comes as the U.S. still has reliability issues with its homeland missile defense system. There is no guarantee it will destroy any incoming nuclear warhead from North Korea. The ground-based interceptors in Alaska and California, have been tested, but, U.S. government agencies have critiqued the test as not being realistic, said John Park, director of the Korea Working Group at the Harvard Kennedy School.

At the same time, Russia and China are upgrading their nuclear capabilities. Pakistan, India and Israel continue to build new nuclear weapons and delivery systems. Air Force officials worry increasingly about the Minuteman’s ability to penetrate adversaries’ future missile defense systems.

The Pentagon has begun work to replace the Minuteman fleet with a new generation of missiles and launch control centers, with a test flight program scheduled for launch in the mid-2020s.

The ICBM missile defense system of the U.S. appears to be unreliable, despite a successful missile intercept in 2017. The Minuteman missile system needs to be upgraded to allow it to be successful in evading missile defense systems of others. Similar upgrades are needed for ship missile launch systems. The threat from North Korea is real, and the U.S. needs substantial improvements in its offensive and defensive missile systems.

Improvements to the U.S. missile programs, including submarine, aircraft, and the ground-based Minuteman 3 missile system are long overdue, particularly in view of the increasing threat from Russia and North Korea. The first phase, the initial design, is underway and Boeing and Northrop have been selected to compete for this phase.

The first phase of a U.S. land-based missile program replacement for the Minuteman 3, deployed in silos in the Great Plains, is underway. The first phase is a $700 million design phase, and Boeing and Northrop have been selected to compete for this business.

The replacement comes at a time when China and Russia are modernizing their nuclear forces, and there is growing risk from North Korea, which has demonstrated an ICBM that might be able to reach the U.S., and in 2017 detonated successfully a hydrogen bomb that they will attempt to put on the ICBM missile tip. As of July 2018, there is no guarantee that U.S. talks with North Korea on the denuclearization of the Korean Peninsula will be successful.

After languishing for years due to budget cuts under the Obama administration, the GBSD program has finally been instituted as one leg of the triad of nuclear missiles, which include submarine launched missiles, and aircraft launched nuclear missiles.

This program will compete for defense dollars with contracts for new naval vessels, such as aircraft carriers, and jet fighters.

U.S. Defense-Air Force
Trump Is Trying To Restore Air Force Readiness: Will He Be Successful?
The Air Force is at its smallest level ever, and less than half of its planes are combat ready. While Trump is attempting to restore our military capabilities, it will take some time to restore the Air Force’s readiness.

According to Maj. Gen. Jim Martin, the Air Force budget director, the budget addresses critical shortfalls while building a larger, more capable and more lethal Air Force.

Addressing readiness deficiencies, the budget funds, among other elements:
• Flying hours to executable levels and weapons system sustainment to near capacity;
• Two additional F-16 training squadrons and ensures advance weapons schools and combat exercises are fully funded to restore full-spectrum readiness long-term;
• The Intercontinental Ballistic Missile Program;
• The space procurement strategy;
• The nuclear enterprise;
• Munitions to support ongoing operations; and
• Replenishing current inventories.

Delaying modernization has become a trend in recent years, allowing potential adversaries to narrow the capability gap. This budget addresses modernization by:
• Advancing recapitalization of the current fighter and tanker fleets by procuring 46 F-35A Lightning and 15 KC-46 Pegasus aircraft;
• Continuing modernization efforts for the 4th and 5th generation aircraft;
• Continuing efforts from fiscal 2017 to maximize munitions production capacity to sustain global precision attack capabilities.

The research, development, test and evaluation investments saw notable growth this in 2017, and are designed to pay significant future dividends through game-changing technologies that, when fielded, will increase lethality and provide the joint force a technological advantage.

The F-35 is the core next generation aircraft program, and will replace several existing Air Force planes. The Air Force is putting much of its aircraft eggs in this basket.

U.S. Defense-Navy
It is planned to increase the Naval fleet from 275 to 350 ships, but this will take additional resources. The 2018 budget adds 8 additional ships. The Navy would like to add one additional carrier to the current eleven. It is likely that the Navy will become more mobile in response to the current threats, particularly from Russia and China, which are also increasing their Navies.

In 2017, President Trump promised to expand the current Naval fleet from 275 to 350, which is near the 355 that the Navy Department was recommending. The U.S. is on the way to 308 ships, but building up to 350, or more, will likely require significant additional shipbuilding resources. However, the numbers can be reached in different ways. The current U.S. program is built around carriers. Another possibility is to add ships that create a more mobile Navy, which may be better suited to the current threats we face, particularly from Russia and China.

Trump’s 2018 budget includes 8 additional ships, which are likely to be small surface ships. The U.S. has 11 aircraft carriers, and, although it will take at least a decade, the Navy would like to add one more to the fleet. To reach a 350 ship level will take decades, which will be complicated by ship retirements. The U.S. has a substantial competitive advantage, particularly when confronting China, in submarines.

Senator John McCain said the Navy should focus investment on undersea warfare, where the U.S. has an advantage, and should procure two to three manned submarines per year in 2020, and four per year starting in 2021, to give industry time to ramp up to meet the government’s need.

The Navy is likely to be rebuilt in ways that will allow the U.S. to effectively confront Iran in the Persian Gulf, China in the South China Seas and the Indian Ocean, and Russia worldwide, while substantially expanding the U.S. submarine fleet.

U.S. Defense-Space
SpaceX and other space companies are competing against NASA. These satellite launch systems are smaller than some being developed by NASA. Lockheed Martin and Boeing are the primary contractors on NASA’s SLS/Orion satellites. They include a very powerful Space Launch System rocket, which is being developed by Boeing for NASA.

SpaceX is successfully competing against NASA using reusable rockets. It has launched a spacecraft to the Space Station. SpaceX has executed successful launches of its reusable Falcon 9 space launch system. Falcon 9 engines are reused by landing them on an ocean platform. Its spacecraft are also recovered after reentry. SpaceX has announced a new launch system, BFM that is planned to send a payload to Mars by 2024. This is a much larger launch system than the Falcon 9.

SpaceX is projecting that by successfully recovering launch engines and space capsules, it will significantly reduce the costs of its space launches. Their plan is for as many as 52 launches in 2019, following the 18 launches in 2017. It is unclear whether launch costs are coming down as much as expected.

India and China Space Programs
India and China are also planning their own space launches for others. They are both expected to be competitors of SpaceX. China has strenuously objected to India’s space activities.

China Space Program
China offered to build telecommunications satellites for Afghanistan, Sri Lanka and Nepal, where India is offering free use of their satellites. China is developing a trading network called One Belt, One Road. It is an ambitious project that includes a traditional land-base trading route from China to Europe. It also includes satellite expenditures that are expected to be about four times those of India.

U.S. Space Program
The U.S. space program is about $40 billion per year, and appears to be about six times that of China. In addition to SpaceX, other competitors in this arena are Richard Branson’s One-Web Ltd., China-based startups One-Space and ExPace. Astrome Technologies, an Indian start-up company plans to launch 150 satellites to provide wireless communications to difficult-to-reach locations. In 2017, Team Indus, a Bangalore-based Indian company, planed to launch a moon-lander in a Google Lunar XPrize competition.

SpaceX, and NASA budget cuts, appear to be putting pressure on NASA to reduce the costs of the SLS/Orion. Lockheed and Boeing are already talking about 50% cost cuts in the future.

Renewed space competition is underway, and Elon Musk’s SpaceX appears to be a leader in the race. However some large competitors could emerge, many of them driven by Indian space launch capabilities. Space is an important frontier that is drawing many participants. It is also important to the U.S. from a defense standpoint, particularly with North Korea developing nuclear weapons, and ICBMs capable of delivering them to the U.S., or putting them into orbit.

SpaceX-Mars Flight By 2024
SpaceX has continued its success with its Falcon 9 space launch system, launched 18 launch vehicles in 2017. It has a strong customer base, including one with NASA to deliver supplies to the Space Station.

Elon Musk unveiled plans for a giant new Big Fucking Rocket (BFR) that could be used to launch a Mars vehicle by as early as 2022, or 2024. This could be as much as 10 years earlier than planned by any other company or country. It will be the biggest rocket ever built, with a capsule larger than a superjumbo airliner. SpaceX’s current customers are commercial customers and the Pentagon.

Chinese And U.S. Companies: Examples Of The Different Treatment They Receive In The Mainland China Market

ArmchairTechInvestor, July 17, 2018, by Brad Peery

Book-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy. Expected publishing date: September 1, 2018
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com, China vs. U.S. Issues
www.ArmchairPolitician.US, Trump Political Achievements

The technological war with China has begun. It remains to be seen whether U.S. companies can do business in China without giving away their technology. The U.S. is pushing back on the Chinese theft of the intellectual property of U.S. companies.

Companies such as ZTE and Huawei are finally being restricted because of the business they do in the U.S. that could provide a threat to U.S. security.

U.S. and other foreign tech companies are severely restricted in accessing the China market. The restrictions vary by sector, but the most onerous restrictions are on providing Internet access to their databases and search services to their customers.

Alibaba
*Alibaba Group Holding is one of three companies, including Tencent Holdings, and Baidu that dominate e-commerce, social media, and mobile payments. With China moving toward what could be mostly an all-electric automobile market by 2030, providing a variety of subscription services to vehicles is viewed as an extremely large market opportunity in China, but also perhaps elsewhere. For example, Renault is forecasting that it could achieve a fivefold increase in revenues by 2023 as a result of its ability to sell automobiles on Alibaba’s platform.

Baidu
***Baidu is one of the three companies that dominate e-commerce, social media, and mobile payments in Chins. In particular it provides search and mapping services. With China moving toward what could be mostly an all-electric automobile market by 2030, providing a variety of subscription services to vehicles is viewed as an extremely large market opportunity in China, but also perhaps elsewhere.

Broadcom
Broadcom is a very large semiconductor company based in Shanghai. It attempted a hostile takeover of Qualcomm, which has an impressive portfolio of intellectual property patents. The U.S. rejected the attempted acquisition on the grounds that such an acquisition could jeopardize national security and the development of 5G Internet technology in the U.S. 5G will become crucial for developing advanced services such as artificial intelligence.

Following its failure to acquire Qualcomm, Broadcom is attempting to acquire U.S. software company, CA. The U.S. may also block this acquisition on the basis that Broadcom is furthering China’s goal of being a leader in semiconductors and software

Huawei
Huawei is a Chinese telecommunications equipment manufacturer. It is the world’s largest wireless equipment manufacturer and the third largest smartphone maker. The company is making an investment in the United Kingdom. The UK has set up a facility, run by Huawei, to examine the intricacies of their own equipment. U.S. politicians have expressed concern that the company’s equipment can be used to gather intelligence for China or even disable U.S. equipment. Even equipment in other countries might also be used for spying on the U.S. or network control purposes. The House and Senate have each introduced bills to address the Huawei risk. Huawei counters that it is an employee-owned company and is respected in 170 countries around the world.

South Korea’s largest carrier’s CEO called Huawei a “concern”. Australia ruled out Huawei for its Solomon Island undersea cable deployment despite the fact that Huawei is an advisor to it on its development of a 5G wireless network.

Tencent Holdings
Tencent Holdings is a Chinese Internet company. Because the Chinese Internet is very tightly controlled by the Chinese government, Tencent Holdings is in a very enviable position. One important capability is their ability to provide GPS mapping services. Driverless vehicles could be an extremely important application. Vehicle manufactures will need to use an Internet company to provide driverless vehicle services. China could eliminate the sale of internal combustion engine cars in China beginning in about 2030.

Xiaomi
Xiaomi, is one of the largest cellphone makers in the China, and has a $46 billion market capitalization. It has high quality cellphones that rival Apple in looks, but are inexpensive. It has completed an Initial Public Offering (IPO that could have a valuation of $100 billion or more. Xiaomi is essentially an Internet company. Its China market share was 12% in 2017 and its shipments grew 50% to 96 million units. However, the company is risky and subject to the vagaries of hardware development companies with low margins. On revenues of $15.2 billion, it had profits of about $1 billion. By contrast Apple had a market capitalization of about $900 billion in early 2018. In China, non-Internet companies are generally banned from using GPS for self-driving vehicles and existing providers such as Xiaomi are very much in demand to provide future services for self-driving electric vehicles.

Zejiang Geely-Daimler-Volvo
Geely has become the premier Chinese vehicle manufacturer by connecting with Western automaker technology. Geely went to Ford to buy Volvo for $1.8 billion. Relying on the manufacturing expertise of Volvo in Sweden, the design vision of a seasoned Western car designer, it has had increasing success both worldwide and in China. China is going toward all-electric vehicles, and Volvo plans to have 90% of its vehicles electric or hybrid by 2020. It has manufacturing plants in China and Europe and has a U.S. plant that will open in the U.S. in 2018.

Daimler
Daimler has said it plans to begin assembling Mercedes-Benz vehicles in 2018 from a $1 billion facility shared with Renault-Nissan in Aguascalientes in Mexico. In February 2018, Li Shufu, the chairman of Chinese automaker Geely, bought Daimler stock, worth $9 billion. Geely will not own the stake. It will be held by an investment vehicle known as Tenaclou3 Prospect Investment Ltd., according to a filing. The purpose of the Geely investment in Daimler is not clear, but because Geely is working to improve the quality of its vehicles, particularly in the luxury vehicle area, that is very likely a reason.

ZTE
ZTE and Huawei are two Chinese companies that could pose a threat to the U.S. broadband communications networks. ZTE has become the fourth largest cellphone supplier in the U.S. The UK banned the use of ZTE equipment because of concerns that China could force the company to infiltrate the UK’s broadband communications infrastructure. China essentially requires Chinese companies that wish to do business in China to pledge allegiance to China. This can result in those companies being used to spy on countries where they do business. This is the equivalent of the U.S. requiring Apple to spy on behalf of the U.S. government, which they would not do. The reverse is true in that Apple would be required to support Chinese government objectives, if it were to do business in China.

China-World Trade Organization
China has used the national security threat issue as a way to protect Chinese companies. China is still considered to be an emerging country under the World Trade Organization rules, showing how antiquated is the WTO.

China announced plans to significantly improve the competitiveness of its state and Chinese semiconductor companies when it launched a $21.8 billion semiconductor development fund in 2014. A U.S. Trade Representative’s report on March 22, 2018 declared the 2014 fund as an effort by government agencies and state-owned companies to meet Chinese national strategic objectives.

China has also announced a new fund that could total about $47.4 billion. Important semiconductor industry sectors it will support are likely to include microprocessors and graphic processors. The objective is to reduce China’s dependence on foreign semiconductor products from companies such as Qualcomm, IBM and Nvidia.

Alphabet (Google)
Google is blocked in China, and unlike Apple, it has not been able to limit the download of apps sufficiently to be able to enter the Chinese Internet search market.

Amazon
Online Internet retailers in China are not allowed to sell directly. This requires Amazon to go through a complicated process that severely limits its capabilities in China, compared with the big three allowed Chinese company Internet providers. In China, the Amazon website is operated by local companies owned by Chinese nationals in order to meet ownership and licensing requirements.

Apple
Apple did well in the December quarter of 2017, increasing revenues by 11% in the Asia-Pacific region, but is losing market share in the huge smartphone markets in China, India and other Asian countries. Taking significant market share is Xiaomi. Which has inexpensive smartphones, and feature rich smartphones that compete with Apple’s X. The X sells for about $1,000.

China is issuing demanding cybersecurity requirements. It is requiring that all cloud data be located on servers in China, including encryption keys. Apple has said that the keys will be stored in a secure location, will retain control of them, and hasn’t put in any backdoors. However, Chinese seizure is always a possibility, or it could require that Apple give them specific keys. The U.S. Congress is very concerned about these keys being stored in China

This could make the data vulnerable to Chinese surveillance. Apple also removed 700 apps that allow users to bypass Internet restrictions. Other restrictions include censoring content, and having to set up joint ventures with Chinese companies. Chinese companies assemble most smartphones.

IBM
U.S. companies such as Tesla, Apple and IBM will, through their foreign subsidiaries in China, meaningfully assist China in their global trade ambitions. It is a brilliant scheme to use unfair trade practices to promote Chinese trade, economic and political influence in the region from Europe to Asia and Africa, and use U.S. companies such as Tesla and IBM to do it.

Staying up with China in quantum computing, and trying to get to a 100-qubit quantum computer will likely be the next military frontier for the U.S. Countries such as China, Russia, the U.K., the European Union, and Australia are in a race to develop quantum computers, as are companies such as Intel, IBM, Microsoft and Alphabet (Google). The winners of the race will be able to obsolete existing cybersecurity technologies and systems.

China-Quantum Computers
China is apparently the leader in quantum computer research. In mid-2017, it launched the first satellite capable of transmitting quantum data. It is building the world’s largest quantum computing facility. Its focus is on code breaking, and supporting its military with quantum navigation systems for stealth submarines. It appears to be getting close to getting a 40-qubit quantum computer prototype.

The U.S. Congress has held hearings to understand quantum computing. China has pledged $10 billion to become the worldwide leader developing this worldwide weapon that could make all current cybersecurity efforts obsolete.

Qualcomm
In 2013, Chinese government officials invaded the Beijing and Shanghai offices of Qualcomm. After a 15-month investigation, regulators saddled the company with a $975 million fine. In addition to the fine, Qualcomm:
• Was branded a monopoly;
• Was forced to reduce prices;
• Had to move more of its technical manufacturing to China;
• And, help boost the technological abilities of Chinese companies.
By 2018, a growing number of American companies “have complained that China has pressured them into sharing their technology in similar ways”.

Qualcomm, which is a worldwide leader in semiconductors used in cellphones, wireless communications networks and semiconductor technology, was threatened by an unfriendly takeover by Broadcom, a Singapore-based company. The U.S. blocked the acquisition on national security grounds. There were several concerns. The acquisition of Qualcomm could have reduced U.S. superiority in semiconductors. It could also have reduced the U.S. lead in next generation 5G broadband networks. Qualcomm has a large business in China, and China has threatened to block Qualcomm has made an offer to acquire NXP Semiconductors, an important part of its growth strategy. The acquisition has been stalled by an antitrust review. In early May, 2018, “Chinese officials said that Qualcomm will have to make more concessions to compensate for the market power it would enjoy after completing the deal, without providing details.”

Qualcomm has developed 5G wireless networks that are used throughout the world. It was in a hostile takeover situation that could have resulted in a Singapore company, Broadcom, taking over the 5G networks being developed in the U.S. These networks will significantly improve the performance of artificial intelligence networks. The two risks were that:
• China could have been in control of the networks that are used to deliver artificial intelligence in the U.S., and are very important to military systems; and,
• China might have used Chinese companies, including Huawei, the second largest supplier of 5G networks worldwide, to infiltrate the U.S. broadband communications networks;
o Chinese companies have sworn allegiances to China, or they wouldn’t be allowed to operate in China. This presumable applies to Broadcom.
The Treasury department blocked the Broadcom acquisition of Qualcomm.

Tesla
Tesla has substantial electric car intellectual property, including wireless car batteries, which it will protect by building an electric car manufacturing plant in Shanghai, thereby avoiding Chinese companies stealing their technology.

China does not allow foreign companies in China to set up manufacturing plants anywhere except in “free trade zones”. One of those free trade zones is Shanghai, where Tesla will locate its plant. There are also ten more such free trade zones throughout China.

China uses unfair trade practices, such as requiring foreign manufacturers to have a Chinese partner, or pay a 25% import duty, if the car is manufactured outside of China. Tesla seems to be unwilling to give away its technology to a Chinese company partner, and perhaps give away 50% of the local Chinese market to them.

Batteries, which are a significant portion of the cost of an electric car, will undoubtedly be able to be imported to the Shanghai plant. This will protect Tesla’s electric car battery technology. Tesla will also be able to benefit from the low cost of Chinese manufacturing, by being in Shanghai. This plant will be able to ship to Asian and European markets from this plant, and enjoy the low cost of Chinese manufacturing plants. It will also benefit from the low cost of automobile parts manufactured in China for its export markets outside of China.

Technology Improvements Could Shift The Balance Of Defense Capabilities In Favor Of China And Russia

ArmchairTechInvestor, July 16, 2018, by Brad Peery

Book-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy.
Expected publishing date: September 1, 2018
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com, China vs. U.S. Issues
www.ArmchairPolitician.US, Trump Political Achievements

In deciding which elements of the book are the most important to future U.S. worldwide ambitions and security, we have decided that they are:
• The investment environments faced by Chinese companies in the U.S. and the unfair trade practices faced by U.S. and foreign companies that seek to invest in China.
• The defense implications of the China’s international ambitions in Africa, Asia, the Arctic and Europe due to:
o China’s territorial ambitions in the South China Sea and Taiwan;
o China’s One Belt, One Road (OBOR) initiative to develop financial, military and political relationships with at least 70 countries in Asia, Africa, the Middle East, and Europe; and
o China’s vacuous claims in the Arctic.
• China’s ambitions for 10 market sectors as articulated in “Made in China 2025”.
• China’s ambitions to be the worldwide leader in military technologies that include:
o Artificial intelligence;
o Quantum computing; and
o Hypersonic speed missiles that operate at 10,000 miles per hour or 10 times the speed of existing missiles.

*A dramatic increase in the speed of missiles in on the horizon. This will challenge U.S. defense efforts to defend against a missile attack, particularly from submarine or aircraft launched nuclear weapons. The aircraft could be Russian MIG-31 fighter jets, and bombers.

Russia appears to be far ahead of the U.S. in developing these hypersonic missiles. They can travel at 10 times the speed of current missiles. According to CNBC sources, Russia should have missiles ready for combat by about 2020.

“We don’t have any defense that could deny the employment of such a weapon against us,” Air Force Gen. John Hyten, commander of U.S. Strategic Command, told the Senate Armed Services Committee in March 2018. This means that, as of now, the U.S. has to rely on deterrence against these so-called hypersonic weapons, he said.

“Both Russia and China are aggressively pursuing hypersonic capabilities,” Hyten said. “We’ve watched them test those capabilities.”

“It’s quite an advantage if anybody could ever do that,” said John Wilcox, vice president at Northrop Grumman. The company built the first hypersonic aircraft back in 2004. It only flew for about 10 seconds. But Northrop Grumman is now conducting tests as part of the Pentagon’s top secret efforts to develop hypersonic weapons that can fly longer and farther.
*Russia’s new hypersonic missile, which can be launched from warplanes, will likely be ready for combat by 2020
CNBC.com, By Amanda Macias, July 13, 2018

The U.S. Considers How to Limit Chinese Company and State Investments in the U.S.

ArmchairTechInvestor, June 28, 2018, by Brad Peery

Book-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy. Expected publishing date: September 1, 2018
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com, China vs. U.S. Issues
www.ArmchairPolitician.US, Trump Political Achievements

We are in the process of writing a Conclusions Chapter for our book, China vs. U.S. 2018 A Police State vs. A Democracy. The three main issues that will be covered in the conclusions chapter are:
• China has underway continuing efforts to acquire the intellectual property of U.S. companies in China and the U.S.;
• U.S. companies are subject to discrimination by the Chinese government in seeking to invest in China;
• China perpetuates a U.S. trade deficit that is being used in part to finance an aggressive One Belt, One Road (OBOR) Initiative to form political, economic, and military relationships in about 70 countries in Asia, Africa, the Middle East, and Europe; and
• What does the U.S. need to do to meet these long-term threats to the U.S. and its democracy.

The China investment in the U.S. element of these issues is addressed below.

*There are substantial intellectual property theft issues that the U.S. has leveled against China both in the U.S. and regarding U.S. companies operating in the Chinese market. The Committee on Foreign Investment in the U.S. (CFIUS) screens foreign investments in the U.S. to determine whether they are a threat to U.S. national security. The U.S. has passed legislation in the House and Senate that would revise the Committee on Foreign Investment in the U.S. (CFIUS) legislation. A compromise bill had not yet been agreed upon by the two chambers as of June 2018. President Trump had proposed broadening the legislation to go beyond national security interests to include such issues as China making small venture capital investments in the U.S. However he may have relented on tightening the scrutiny.

The focus of additional restrictions on China could involve scrutiny of more transactions, including possible limitations on state-owned companies. An export-import section could examine the treatment of U.S. companies doing business in the China market.
*President Eases His Approach On China, Wall Street Journal, by Bob Davis, June 26, 2018

The issues of intellectual property theft from U.S. companies also extends to China. It has a plan, “Made in China 2025” that details 10 areas of technology that Chinese companies will try to dominate by 2025. From a military standpoint, the most important areas are information technology, aerospace, maritime, robots, and advanced materials. China has been downplaying its Made in China 2025 policies, but it is probable that these policies will continue to be pursued aggressively.

Two factors of importance in the China market are that there are only 3 Chinese companies that are allowed to directly access the web and foreign companies must go through them to use the Internet. The second important factor is that foreign companies must have Chinese partners with whom they must share their technologies to do business in China.

International trade with China has two aspects that are crucial to understand the situation. On one hand, China imposes tariffs on foreign companies that want to export into the China mainland market. The size of these tariffs is substantial, including 25% on vehicles exported from the U.S. There are also Chinese industries that are protected under an outdated World Trade Organization (WTO) that still treats China as an emerging country and allows them protections for sectors that are vital to their national defense. The U.S. has imposed tariffs on steel and aluminum that are based upon these industries being vital to the U.S. national defense, and domestic manufacturing needs to be revitalized. This is in line with what China is still allowed to do under the antiquated WTO structure.

**Made in China 2025
1. Information Technology:
a. Semiconductor chips;
b. Computers;
c. Cloud computing systems;
d. Industrial censors;
e. Artificial intelligence; and
f. Quantum computers.
2. Robots
3. Aerospace:
a. Airplanes;
b. Jet engines; and
c. Civilian space industry.
4. Maritime:
a. Ships; and
b. Out-at-sea engineering equipment and systems.
5. Railways
6. Smart Vehicles:
a. Electric; and
b. Hybrids.
7. Renewables:
a. Geothermal
b. Hydro;
c. Solar; and
d. Wind.
8. Farming:
a. Equipment
b. Genetically modified organisms; and
c. Tractors.
9. Materials:
a. Advanced basic materials; and
b. Strategic materials
i. Rare earths
ii. Alloys.
10. Drugs and Devices:
a. Biotechnology;
b. Drug development; and
c. Hospital equipment.
**Made in China 2025: Beijing’s big ambitions from robots to chips, Reuters, Adam Jourdan, April 20, 2018

China’s One Belt, One Road Initiative And Europe Is Destination For Links From Asia- European Region 2- Lithuania, Maldives, Moldova, Poland, Russia, Slovakia, and Ukraine

ArmchairTechInvestor, June 8, 2018, by Brad Peery

Book Under Development-Simon and Schuster: China vs. U.S. 2018, A Police State vs. A Democracy
Book on Amazon.com: Trump’s Political Agenda and Achievements

Blogs
www.ArmchairTechInvestor.com
www.ArmchairPolitician.US

Below are summaries of the OBOR initiatives in the countries covered in European Region 2.

Lithuania

*”Lithuania is bound by Latvia to the north and Poland to the south. Lithuania is the largest country among the Baltic States in terms of population, territory and economy. It is located at the intersection of three very large markets of almost 800 million consumers in total. Lithuania provides access to the Western markets of the EU and Scandinavia, and the Eastern markets of Russia and the other former Soviet states.”

Tensions between Russia and Lithuania has been increasing since the Ukrainian Crisis began in 2013. However, economic co-operation between China and Lithuania has been deepening. There is the 16+1 formula promoting regional co-operation between Central and Eastern Europe and China, plus the expressed interest of Chinese participation in the Rail-Baltic project. This project could looks enhance regional cooperation, and bring Chinese-Lithuanian relations to a higher level. The EU-backed railway will connect Lithuania with the other Baltic States, Finland and Poland.

Lithuania is improving its maritime access as a way of boosting its economy. The port of Klaipeda, which is a company owned by Lithuania, brings 6% of GDP. The OBOR Initiative is developing four modes of improvement.

“The port is well located, and can serve Scandinavia, Eastern Europe and Great Britain, using the very dense network of container lines connections. Currently Klaipeda serves 42 million tons of goods annually. This fact places it on the third place among the ports of this part of the Baltic Sea, behind the large Russian ports of Primorsk and Ust-Luga. The average annual increase in port operation efficiency is 6.4%”.

**The construction of infrastructure for LNG handling is in progress. Creating a transshipment center for railway transport in both directions for goods transported between China and Europe is also being considered, which will allow loading of goods directed to the Chinese market. Klaipeda is just starting cooperation under the OBOR Initiative. The contractor of the high quality terminals, which are currently being built, is a single company, named Company Investment Limited.
**Lithuania’s investments within the framework of ‘One Belt One Route’ projects, Coordinating Secretariat for Maritime Issues, “16 + 1”, October 26, 2017

Maldives

Maldives is a small island country in the Indian Ocean, about 620 miles southwest of Sri Lanka. A middle-income country with a small population inhabiting some 200 of its 1,000 islands, Maldives relies on its tourism and fishery sectors for economic growth. Maldives is one of the countries along China’s Maritime Silk Road under the MBOR Initiative.

*”China provided financial aid, and assisted with the construction of China-Maldives Friendship Bridge, which will increase connectivity between the islands in Maldives. The project was started in 2015 and is scheduled to be complete in August 2018. In addition to inviting Chinese airlines to land in Maldives, the government is building a new runway at the Velana International Airport with Chinese loans and infrastructural assistance, which was expected to be completed in mid-2018”.

***The Maldives has and autocratic president, Abdulla Yameen. “If he cracks down on the opposition to consolidate power ahead of another election, analysts and diplomats warn that the small nation’s troubles could provoke a larger crisis that draws in China and India, which have long competed for influence in the Indian Ocean region”.

“Mohamed Nasheed, the opposition leader, has largely lived in exile since his term as the country’s first democratically elected president ended in a ‘coup of sorts’ in 2012. He expressed fears that an expansionist China is propping up Mr. Yameen to lock the country into a ‘debt trap’, a term that refers to China’s taking over of infrastructure projects when a country cannot pay back its loans, such as the recent takeover of a port in Sri Lanka.”

Indian officials have expressed concern about the situation, but have had a weakk response. Indian influence in the Maldives has declined since 2012, when it did not stand firmly behind Mr. Nasheed, who had been an ally, as he was removed from office. Anand Kumar, a fellow at the Institute for Defense Studies and Analyses in New Delhi, said “although India was clearly alarmed about losing influence to the Chinese in the Indian Ocean, it had struggled to respond”.
***Maldives Crisis Could Stir Trouble Between China and India, New York Times, By Mujib Mashal, February. 14, 2018

Moldova

*Moldova is located in Southeastern Europe and is north of the Balkan Peninsula. Moldova is landlocked Moldova is located between Romania and Ukraine. “Its favorable location and good transportation infrastructure provides easy access to the EU and the former Soviet countries. The longest Pan-European Corridor IX (connecting Helsinki in Finland and Alexandroupoli in Greece) crosses Moldova from north to south, while the Corridor VII (connecting Passau-Germany with the Black Sea) passes through the Giurgiulesti Port on the Danube River.”

Historically, Moldova’s largest industries have been manufacturing, agriculture and food processing, textiles, apparel and footwear. However, Information, Communication Technology (ICT), medicine, automotive and renewable energy are emerging growth sectors, with many foreign investors entering the market.

Moldova is a member of the Central European Free Trade Agreement (CEFTA) which includes Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia. Also, in June 2014, Moldova and the EU signed an Association Agreement (AA). The AA introduces a preferential trade regime. the Deep and Comprehensive Free Trade Area (DCFTA), which sets up a free-trade area between Moldova and the EU.

****If China can reach an OBOR deal with Moldova, it could set an example in the region. China has invested heavily in the country since the late 2000s, including agreeing a $1 billion loan in 2009. The former Soviet Union’s second-smallest state, by area, after Armenia, is anxious about getting foreign funds. In 2016, it had a gross domestic product of US$6.75 billion and a GDP per capita of $1,900, according to World Bank figures. The corresponding numbers for China were US$11.2 trillion and $8,123.

Moldova exported US$14.5 million worth of goods – mostly wine and furniture – to China in 2016, while the value of its imports from the world’s second-largest economy, including electrical machinery, plastics, rubber and chemical products, totaled US$394 million. This is another example of the very large trade deficits that countries such as Moldova run with China.

In addition to free-trade negotiations, representatives from China National Nuclear Power Company, and their Moldovan counterparts have held talks to boost cooperation in the energy sector.
****Can a China-Moldova free-trade deal give Beijing a foothold in Eastern Europe?, South China Morning Post, Liu Zhen, December 29, 2017

Poland

*Poland is a member of the European Union (EU), and its trade relations with the Chinese mainland are affected by EU’s common external trade policy and measures. Under a new structure, tariff preferences are removed for imports into the EU from countries where per-capita income has exceeded $4,000 for four years in a row. As a result, the number of countries that enjoy preferential access to EU markets was reduced from 176 to under 80 markets.

“While the Chinese mainland remains a beneficiary, many of its exports such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been “graduated” from the preferential treatment. A number of Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass.”

The author argues that at the moment cooperation with China neither poses a serious political threat per se, nor represents a source of sustainable economic growth in the region.

*****The underlying problems of Sino-Polish cooperation remain the same. In other words:
• The trade deficit has been growing steadily; while,
• The most needed greenfield investments have been minimal;
• The importance of China for the region is still marginal in comparison to Western Europe;
• Cooperation should be continued but it should focus more on areas that would actually be profitable for the CEE economies in the longer perspective, bearing in mind each economies’ comparative advantage:
o e.g. food processing or the aviation industry in Poland.
• When it comes to long-term risks, the biggest threat might come from potential Chinese acquisitions of European know-how in sensitive sectors, such as high-tech or telecommunications;
o This way, Central and Eastern European (CEE) countries should cooperate closer with the rest of EU in order to pressure Beijing to open up its domestic market, while closely monitoring Chinese investments in Europe in sensitive sectors.
*****China, Poland, and the Belt and Road Initiative – the Future of Chinese Engagement in Central and Eastern Europe, Geopolitica, Alicja Bachulska, December 12, 2017

Russia & Ukraine

*”To stimulate investment with an aim to diversify its economy, the Russian government is providing a wide array of incentives for investors developing new product, technology in the energy efficiency, nuclear engineering, space technology, medicine and IT industries. Other key sectors for development include pharmaceutical and medical, real estate, innovations and technology, infrastructure, aluminum, iron and steel, lead, platinum-group metals, precious metals, nickel, copper, zinc, coal, telecommunications, transportation, agriculture and food and gas.”

The Ukraine crisis made Russia embrace the OBOR Initiative by:
• Beginning confrontation with the West and Russia’s deteriorating economy due to U.S.-led sanctions and falling oil prices left Moscow little choice.
• Without Ukraine, the second-largest post-Soviet economy and a market of about 44 million people, Moscow’s hopes to create an integrated bloc that would be on par with the European Union and other centers of global economic power were essentially dashed.
• Lacking a market of sufficient size to create its own viable geo-economic area, Russia was left with the only option of moving into another nation’s economic orbit.
• Russia joined the China-controlled Asian Infrastructure Investment Bank in March 2015; but
• The most decisive step came a few months later in May, when Xi and Russian President Vladimir Putin met in Moscow to pledge to work toward a “link-up” between Russia’s Eurasian Economic Union (EEU) and China’s OBOR Initiative.

Still, while praising the OBOR Initiative plan, Moscow seeks to prevent China’s geopolitical domination of continental Eurasia. Instead of wholeheartedly endorsing China’s Initiative, Russia pushes its own vision of “a larger Eurasian partnership” or “Greater Eurasia,” a network of existing and emerging integration formats.” Beijing’s OBOR would be just one element, alongside the EEU, the Shanghai Cooperation Organization, the Association of Southeast Asian Nations and potentially even the EU.
Putin’s Silk Road gamble, The Washington Post, By Artyom Lukin. February 8, 2018

Slovakia

*Slovakia is uniquely situated in the heart of the Europe, between East and West, and between Poland, Hungary, Austria, the Czech Republic and Ukraine. The country has an inland hub. “It connects Europe with China over three transit corridors, the Trans-Siberian transit (Slovakia-Manchuria), the Kazakh transit (Slovakia-Alashankou) and the Trans-Caspian transit (Slovakia-Alashankou via Azerbaijan and Georgia). This location has enabled Chinese manufacturers to ship parts and components directly by rail in about 12 days to factories in Slovakia for processing near their final European market.”

*”With its strong industrial base, Slovakia’s economy has become one of the fastest-growing in the EU. It has had an average annual GDP growth of 1.9% since its adoption of the euro in 2009. It is the best-performing EU member in the 16+1 format (co-operation between 16 CEE countries and China)”.

Slovakia has had an economic concentration on export-led development. It has aggressively developed export-oriented manufacturing, especially in the automotive and electronics industries. It has also become strong shared services centers (SSCs) and business process outsourcing centers (BPOs).

******To further develop bilateral relations, China needs to take into account the public discourse of target countries. The importance of understanding other cultures and domestic settings is not a new concept in Chinese political philosophy. Recently, Zhao Lei, a professor at the Chinese Central Party School, recognized the need to use other countries’ domestic media outlets to spread a positive image of China.

******“To generate soft power, China will likely deploy narratives tailored to the specific perceptions of target audiences. Beijing already relies on controversial means to control media narratives, namely buying foreign media outlets. In 2015, it came to light that China Radio International (a state-owned radio broadcaster) was covertly backing at least 33 foreign radio stations that broadcasted positive news of China”.
******Do the Central European media show caution towards China?, Matej Šimalčík, East Asia Forum, Institute of Asian Studies, February 14, 2018

Ukraine

*”Ukraine sits at the crossroads of Eastern Europe and Russia. Aside from a heavy reliance on commodities such as coal and steel and industries like transport equipment manufacturing, Ukraine’s resources and economic strengths include rich agricultural land, a strong scientific establishment and significant mineral reserves.”

WTO membership in 2008 has brought Ukraine significant benefits, including access to steel and textiles to the EU. Recently, the EU has surpassed Russia to become Ukraine’s most important trading partner.

*******“Despite the 2014 Ukrainian revolution and the subsequent Russian annexation of Crimea, the Association Agreement with the EU, including a Deep and Comprehensive Free Trade Area, aims to deepen political and economic relations between the EU and Ukraine, and to pave the path to gradually integrate the country with the EU’s Internal Market.”
*******As Trump Is Distracted, The Chinese Are Moving In On Ukraine. Newsweek, By Nolan Peterson, December 12, 2017

China’s One Belt, One Road Initiative And Europe Is Destination For Links From Asia- European Region 1-Austria, Belarus, Czech Republic, Estonia, Hungary and Latvia

ArmchairTechInvestor, June 8, 2018, by Brad Peery

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Below are summaries of the OBOR initiatives in the countries covered in European Region 1.

Austria

*Austria has a population of about 9 million. It is a landlocked country in the middle of Europe. It borders Germany, the Czech Republic, Slovakia, Hungary, Slovenia, Italy, Switzerland and Liechtenstein. Austria is known for its political and economic stability, and is one of the richest countries in the world, having a per-capita GDP of more than $47,000.
*The Belt and Road Initiative: Country Profiles, Hong Kong Trade Development Council, May 17, 2018

**“According to the Central Bank of Austria, China’s total stock of FDI in Austria amounted to $773 million as of the end of 2017, a considerable increase on the $163 million recorded in 2009. With an Austrian FDI level of $3 billion as of the end of 2017, Hong Kong, however, was the largest Asian investor in the country overall.”

**“The China-proposed Belt and Road Initiative opens up opportunities for Austria and China to boost cooperation, Austrian Chancellor Sebastian Kurz told Xinhua. “I see transport, energy and telecommunications, sustainable technologies, rural development, financial services and e-commerce as attractive areas with special expertise” for bilateral cooperation within the framework of the Belt and Road Initiative, Kurz said.”
**Belt and Road Initiative spells opportunities for Austria-China cooperation, Xinhua, April 7, 2018

Belarus

*“Belarus is a landlocked nation. It borders Russia, Latvia, Lithuania, Poland and Ukraine. Due to its strategic location, it is an important trade and transport route in Eurasia. The country’s transportation infrastructure consists of a broad network of motorways, railways and air routes. The thoroughfares crossing the country – including two Pan-European corridors (II and IX) – are the most important component of the European transportation system.”

Belarus is a founding member of the Eurasian Economic Union (EAEU). It is not only as a gateway to the other signatories, Russia, Kazakhstan, Armenia and Kyrgyzstan, but also to the whole regional market. Each year over 100 million tons of European cargo cross Belarus. Russia and the EU receive 90% of the cargo.

***“Belarus is implementing over 30 investment projects financed by Chinese loans, worth about $6bn. The Great Stone Industrial Park is the largest of them. Lukashenka insists that only high-tech companies with guaranteed sales markets should become residents of the park. Currently, eight residents are registered within the park, including China Merchants Group, Huawei, and ZTE. An imbalance in Belarusian-Chinese trade, however, is raising concern within the Belarusian government. In 2016 it exceeded $2.5bn.”
***Belarus and One Belt, One Road, alternative oil, SCTO, Belarus state press digest, May 20, 2017

Czech Republic

*The inroads that China and Hong Kong are making in improving their trade are nowhere more evident than in the Czech Republic. “Hong Kong’s total exports to the Czech Republic surged by 27% to $826 million in the first eleven months of 2017, while its imports from the Czech Republic grew by 14% to $180 million”, with the trade deficit expanding dramatically.

****The Czech president, Miloš Zeman, a populist who was re-elected earlier in 2018. He is on record calling Xi his “young friend”, and Belt and Road “the most remarkable initiative in modern human history”. The following are some details of China’s involvement in the Czech Republic:
• In 2014, the Czech government proclaimed that the country would aspire to become “China’s gateway to Europe”;
o It broke entirely with the pro-democracy principles;
• By 2015, Zeman had named as his honorary adviser Ye Jianming, the chairman of a Chinese mega-company: CEFC, which had arrived in the Czech Republic promising billions of dollars of investments;
• CEFC embarked on a buying spree:
o Travel services;
o An airline company;
o A brewery;
o A football club; and
o A media group. I
o It also lost no time hiring scores of former Czech elected officials, who often double as advisers at various ministries, or indeed within the presidential castle.
♣ CEFC’s main investments in the Czech Republic weren’t economic, they were about buying up the loyalty of Czech officials.
o As time passed, actual investments remained negligible. The few deals that did materialize were mostly real estate acquisitions.
• In March, 2018, Ye suddenly ran into trouble in Beijing.
o News broke that he’d been arrested and come under investigation for financial irregularities.
o Prior to that, in November, 2017, the head of CEFC’s non-profit arm, the former Hong Kong politician Patrick Ho, was arrested in New York and accused of bribing presidents and government ministers in Africa.
• The result was that the heavily indebted CEFC would effectively be taken over by the Chinese state, together with its Czech acquisitions.
o So much for the hopes that the company would save the Czech economy as a private investor.
• Debates have ensued about the wisdom of tying the country’s future to mysterious Chinese entities and to the Communist regime in Beijing;
• Some of the metaphors Chinese media have attached to the Belt and Road project are revealing. They often call it “globalization 2.0”, or the “New World Order”.
o What that vocabulary struggles to mask is that the whole endeavor is driven far more by politics than by markets.
• Other problems are:
o Deals are negotiated at state-to-state diplomatic summits;
o Open tenders are shunned;
o Contracts are awarded by political fiat;
o Ostensibly commercial companies put former politicians on their payrolls by the dozen;
• As it turns out, CEFC’s main investments in the Czech Republic weren’t economic, they were about buying up the loyalty of Czech officials. What China has to show for itself in my country is hardly innovation. Rather, it has brought us a new take on age-old crony capitalism.
****China’s gift to Europe is a new version of crony capitalism, The Guardian, Martin Hala, April 20, 2018

Estonia

*Estonia as can be seen is the closest point of access to China in terms of rail connectivity. However, its not just China that OBOR connects. The South-East Rail section, when completed, will add countries such as Vietnam, Thailand, and Myanmar to that list, although there are serious infrastructure problems in linking these markets to China’s high-speed network.

*****“Among the three Baltic States, Estonia has the highest per-capita GDP. The Estonian economy largely relies on the sectors related to forestry, while its energy sector is based on oil shale. Estonia’s transportation abilities are enabling it to develop into an increasingly important logistics hub moving goods, knowledge and people in the east-west direction. Situated on a busy trading route between East and West, Estonia operates nearly 30 well-developed ports. Among them, the state-owned port of Tallinn is the largest.”

China’s OBOR Initiative reaches the markets of the EU by concentrating on Estonia and its infrastructure and logistics initiatives. Estonia, with a population of just 1.2 million, is among the smallest countries in the EU. China’s strategy has been to target Estonia as the nearest full EU member, and to take advantage of and help develop Estonia’s ‘smart’ IT driven interconnectivity.

Estonia has effectively become the world’s first ‘digital state’ where nearly all interactions between the government and its citizens are now online. This gives foreign nationals, with Estonian e-residency, access to the EU but without having to leave their homes. The current 10,000 e-residents are planned to grow to 10 million by 2025 and increase its services revenue. This speeds up the entire delivery and excise process and adds a digital layer of security, again a perfect match for China and the EU’s needs. This is one reason that Alibaba is interested in partnering with Estonian companies.
*****China Eyes Estonia as Smartest and Nearest Port for EU Access, Silk Road Briefing, July 20, 2017

Hungary

*”Hungary has been a member of the EU since May 2004, and it has adopted the EU’s common external trade policy and measures. A number of Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass, which are of interest to Hong Kong exporters”.

******“The centerpiece of China’s OBOR initiative in Eastern Europe is a planned 220 mile high-speed Chinese-funded railway connecting Budapest, Hungary to Belgrade, the Serbian capital. In 2013 it was described by commentators as China’s “express lane” to Europe. The $3 billion investment is set to be the first part of a much larger rail route linking the Chinese-run Greek port of Piraeus with Europe’s heartland.

The Belgrade-Budapest railway has encountered EU delays and contractual problems. Work on the Serbian portion of the line should have begun in November, 2017. But progress on the Hungarian part, which started in 2015, has stalled. This largely comes down to European Union rules. Serbia is only a prospective member of the EU and only has to abide by a looser set of rules.
******China’s Relationship With Hungary Is Being Tested As The EU And Russia Apply Pressure, David Hutt, September 5, 2017

Latvia

Located between Lithuania and Estonia, Latvia provides a strategic location for business operations targeting developed economies of the EU as well as the emerging markets to its east. Latvia is also a natural gateway between the EU and Russia, and the other former Soviet states.

*“Latvia is the transport and logistics hub of the region, with three major, ice-free international ports –namely Riga, Ventspils and Liepāja – closely linked to the country’s well-developed rail, road and pipeline infrastructure. Meanwhile, Riga International Airport is the largest airport, serving about two-thirds of all flights in the region, whereas Ventspils is the busiest port.”

*******“In May 2018, several officials from Beijing showed particular interest in the Port of Riga. It was an opportunity for the Freeport of Riga Authority to present the Port of Riga as an effective transit hub for the transportation of Chinese container cargoes and as a good place for Chinese investment. The representatives of the city of Beijing were informed of the potential investment and cooperation opportunities in the Port of Riga.
*******Riga Port has the potential to become a significant transit hub for the New Silk Road, Embassy of the Republic of Latvia, June 4, 2018

China’s One Belt, One Road Initiative And The Balkans Are Seaport Links Between Asia And Europe- Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Macedonia, Montenegro, Romania, Serbia and Slovenia

ArmchairTechInvestor, June 7, 2018, by Brad Peery

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Below are summaries of the OBOR initiatives in the countries covered in the Balkans Region.

Albania

*“Albania is a small country in Southeast Europe, located across from Italy (less than 45 miles from the Italian coast) and bordering Montenegro to the northwest, Kosovo to the northeast, Macedonia to the east and Greece to the south and southeast. With a coastline on the Adriatic Sea to the west and on the Ionian Sea to the southwest, Albania is strategically placed at the center of a natural crossroad in Europe.”
*The Belt and Road Initiative: Country Profiles, Hong Kong Trade Development Council, May 17, 2018

**“China would like to take an active part in Albanian major infrastructural and energy projects such as roads, hydro-electric power stations and economic development zones, and strengthen cooperation on cultural and people-to-people exchanges, film-making, education and tourism, the Chinese vice premier said.”
**China, Albania agree to expand cooperation under Belt and Road, 16+1 framework, Xinhua|, Yameni, April 18, 2017

Bosnia & Herzegovina

Bosnia and Herzegovina (B&H) shares borders with Croatia, Serbia and Montenegro in Southern Europe. A number of agreements between the EU and B&H have been concluded, including the Stabilization and Association Agreement (SAA), which became effective on June 1, 2015. In addition to the SAA, B&H has signed the Central European Free Trade Agreement (CEFTA) with Albania, Kosovo, Macedonia, Moldova, Montenegro and Serbia. It has also signed free trade accords with Turkey and joined the European Free Trade Association, (EFTA), a common market that includes Switzerland, Norway, Iceland and Liechtenstein.

***Gen. Chang Wanquan said that Bosnia and Herzegovina is a trusted friend of China in Central and Eastern Europe. In recent years, mutual political trust between the two countries has been deepened, and exchanges and cooperation have been steadily advanced in various fields. Marina Pendes, the Defense Minister of B&H, said that the two countries and two militaries have profound friendship. Bosnia and Herzegovina firmly adheres to the One-China policy and firmly believes that the Belt and Road Initiative will benefit countries and people along the way and of the world as a whole.
***Chinese defense minister meets with Bosnia and Herzegovina counterpart, China Military, EditorYao Jianing, May 17, 2017

Bulgaria

“”Bulgaria has a strategic location at the center of the Balkans and Southeast Europe, and the main roads of Europe to the Middle East and Asia pass through it. Ease of transportation is provided by five Pan-European corridors (IV, VII, VIII, IX and X), four major airports (Sofia, Plovdiv, Bourgas and Varna), two of the largest ports on the Black Sea (Varna and Bourgas) and numerous other ports along the Danube River.”

Bulgaria could become a bridge for Chinese cargo and open the “New Silk Road”(One Belt One Road Initiative) to Central and Western Europe, said Transport Minister Ivaylo Moskovski in response to a question on the Trans-Caspian transport corridor, reports Bgnes.

****“A meeting in early 2018 was attended by representatives of Georgia, Azerbaijan and Kazakhstan (rail and sea carriers, logistics companies). For the purpose of acquainting with the opportunities of the Bulgarian ports, visits to ferryboat complex Varna, port of Varna and port of Burgas (Port Bulgaria West and BMF Port) were organized within the meeting. In order to develop the cooperation with the participants in the project, representatives of BDZ – Freight Transport EOOD took part in various initiatives, within which the potential of the Trans-Caspian International Transport Route was presented.”
****Bulgaria can Open the “New Silk Road” to Central and Western Europe, Novinite.com, April 29, 2018

Croatia

*Croatia is located in Southeast Europe, and is bordered by Italy, Slovenia, Hungary, Serbia, Bosnia and Herzegovina and Montenegro. “With three major Pan-European corridors (X, V and VII) crossing through it, Croatia provides one of the shortest routes linking Western Europe with Asia, Eastern Europe and the Mediterranean. This advantageous geo-strategic position, coupled with lower operating costs compared to the majority of other EU members, has made Croatia increasingly attractive as an investment destination in Europe.”

Pragmatic Croatian-Chinese cooperation has been considerably strengthened, Chinese Ambassador Hu Zhaoming said.

****”Over the past 25 years, the mutual understanding of the two peoples has deepened greatly. Pragmatic cooperation between Croatia and China has gained in strength and last year our trade volume reached $1.2 billion, which means that it grew over 30 times in the past 25 years,” Hu said, adding that “our relations are at a new starting point, facing new historical opportunities. Although the two countries have established a comprehensive cooperative partnership, the ambassador noted that bilateral cooperation lags behind China’s cooperation with Croatia’s neighbors.
****China, Croatia could enhance ties under Belt and Road Initiative: ambassador, Xinhua|, Yang Yi, September 15, 2017

Greece

*****In 2016, the Chinese state-owned firm COSCO Shipping completed the acquisition of a 51% stake in Piraeus Port, Greece, one of the biggest ports in Europe. “Greece, a key point along the route of the ancient Silk Road, will once again serve as the hub connecting Asia, Europe and Africa, according to the Greek Ambassador, Leonidas Rokanas. ‘Eventually, Piraeus will become the main entry point for Chinese exports to southern, eastern and central Europe,’ Rokanas told the South China Morning Post. To use a Chinese metaphor, Piraeus will form the ‘head of the dragon’ of the so-called land-sea express route, leading to the heart of Europe through Greece.”

For Greece, the deal could represent a major boost for its recovery following the debt crisis that started in 2009, and racked its economy. The port sale has ushered in a flurry of Chinese investments totaling $1.6 billion from companies including mobile giants Huawei and ZTE, the China Machinery Engineering Corporation as well as State Grid, Shenhua Group and Sinovel in the energy sector.

For China, the deal represents an important element of the OBOR Initiative as some 50 per cent of China’s GDP and around 90 per cent of the EU’s external trade depends on shipping. “The land-sea express passage connecting southeast and central Europe to China via Piraeus … has further upgraded the significance of Piraeus,” said the Greek envoy.

Greece has already taken concrete steps towards making the Port of Piraeus the entry point for an extended railway network into inland Europe. Greek Prime Minister Alexis Tsipras expressed the intent of Greece to upgrade the railway connection between Piraeus and Serbia’s capital Belgrade.

In September, Greece signed an agreement with Bulgaria on the construction of a high-speed railway network, named “Sea2Sea”, that will connect three ports in Greece, Thessaloniki, Kavala, Alexandroupolis, with three Bulgarian ports, Burgas and Varna on the Black Sea and Ruse on the Danube, Europe’s second-longest river.
*****Why Greece is banking on China’s modern-day Silk Road to help its economic recovery, South China Morning Post, By Catherine Wong, December 26, 2017

Macedonia

“Macedonia is a landlocked and mountainous country in Southeast Europe. One of the least developed of the Yugoslav republics to gain independence in 1991, Macedonia remains one of the poorest economies in Europe. However, given its considerable economic reforms, Macedonia was ranked 10th in the World Bank’s annual Ease of Doing Business Report 2016. Macedonia’s sea transport relies mainly on ports in neighboring countries, such as Port of Thessaloniki in Greece and Port of Durrës in Albania, through road and rail links.”

The infrastructural projects built with Chinese aid are extremely important for the region of Central and Eastern Europe, but we also need educational, scientific and cultural connection, Macedonian President Gjorge Ivanov admits.

******”China once again comes close to the position it had two centuries ago, and that is to be the biggest economy in the world. As a result of this progress, China has made a huge step forward in many other fields,” Macedonian President Ivanov says, pointing out that the countries from Central and Eastern Europe can benefit especially from the Chinese accomplishments in the area of technology and innovation.”
******”One Belt, One Road” initiative brings more than infrastructure to Central and Eastern Europe, Xinhua|, Editor, Mu Xuequan, October 8, 2017

Montenegro

*“Montenegro is situated at the center of the Balkan Peninsula in Southern Europe. Its southern coastline lies on the Adriatic Sea, while borders are shared with Albania, Serbia, Bosnia-Herzegovina and Croatia. With access to the Mediterranean Sea, and having the Port of Bar as its most important south Adriatic port, Montenegro serves as a link between Southern Europe and Africa, the Middle East, India, Russia and Asia.” Montenegro has free trade agreements with the EU, the European Free Trade Association (EFTA), the Central European countries (CEFTA) and Russia.

President Aleksandar Vučić said that Serbia is in the midst of a physical transformation that Vučić has promised his compatriots will end their isolation and open the door to the European Union. To turn his “passion” into reality, the Serbian president is relying not just on Europe, but on an old ally farther east, China.

*******For China, its investments are both economic and political. The Balkans form an important corridor along Beijing’s OBOR Initiative and also promise to further China’s influence in European politics. Chinese shipping giant Cosco has acquired a controlling stake in Greece’s Piraeus port, the country’s largest. The Chinese have already turned it into one of the world’s top 50 ports in terms of container volume.

That was only the first step. China wants to transform Piraeus into a European beachhead. For Europe-bound Chinese ships, which usually travel through the Suez Canal before heading to a northern port such as Rotterdam or Hamburg, Piraeus’ relative proximity makes is a more attractive option, if the Balkans can be provided with modern roads and rails on which the freight can travel.
*******Beijing’s Balkan backdoor, Politico, By Matthew Karnitschnig, July 13, 2017

Romania

*”Romania is located at the intersection of the EU, the Balkans and the former Soviet countries, Romania is crossed by three important Pan-European transportation corridors. As a major crossroad for international economic exchange in Europe, the country’s leading seaport, Constanta, is the biggest and busiest in the entire Black Sea region, capable of hosting vessels of more than 150,000 tons.”

Romania has abundant high quality natural resources. They include mineral deposits such as oil and gas, as well as highly fertile agricultural land. In recent years, investment has been made in energy, machinery, healthcare and transport, which should help Romania achieve its EU 2020 targets, particularly in R&D spending and improvements in energy efficiency.

********“Romania can develop an energy center and can become one of China’s long-term economic partners in the energy field. Romania has a huge processing capacity of 5 million tons in good, competitive refineries and this should be an asset to put on the table for Silk Road development. Romania was the first country to exploit petroleum by training petroleum engineers and building one of the first refineries, and it has not lost this knowledge and expertise.”

“OBOR is the project of the century because it has many stakeholders and will produce manifold effects on the countries involved. There are also a large number of challenges that lie ahead for the Chinese institutions in charge of this project,” believes Liviu Muresan, president of EURISC, a Bucharest-based think tank that has been working with Chinese academics, researchers, and China-based think tanks for many years.

Romania has expertise in critical infrastructures, ranging from the maritime field to space. Space is a key enabler for critical infrastructure that coordinates systems on Earth, and the field is usually approached through joint projects because one country cannot manage all the risks. EURISC has introduced the critical infrastructure dimension in the OBOR Initiative during discussions with Chinese partners, think-tanks, and the China National Petroleum Corporation.

“Expertise in resilience and critical infrastructure is something few organizations possess. The Shanghai Institute for International Studies, an influential Chinese think tank both in China and abroad, considered EURISC’s contribution on “Critical Infrastructure Perspective on the Belt and Road Initiative and its Opportunities and Challenges” to be a useful conceptual approach for research and cooperation within the 16+1 initiative and OBOR Initiative.”
********The Impact of China’s One Belt, One Road on Romania, Geopolitical Monitor, By Marcela Ganea, December 19, 2016

Serbia

*”Serbia is a landlocked country situated in the centre of the Balkan Peninsula in Southeast Europe. As a viable platform for customs-free exports to a market of almost 800 million people, Serbia enjoys free trade with the EU. It is also the only country outside of the Commonwealth of Independent States (CIS) that has a free trade agreement (FTA) with Russia. In January 2014, Serbia officially commenced EU membership negotiations (with full membership expected in 2020).”

*******“President Xi Jinping of China chose an industrial town on the Danube River to announce that Serbia was at the center of a $900 billion OBOR infrastructure initiative. Standing on the grounds of a Communist-era steel plant in Smederevo, about 28 miles east of Belgrade, the capital, Mr. Xi promised to pour money into roads and railways to create a transport corridor for Chinese goods to flow to West European markets. Called the New Silk Road, the route would run from China to Germany, via the port of Piraeus in Greece, passing through the Balkans.”

During Mr. Xi’s state visit, he said China would bring more jobs, improve living standards and lift the country’s economic growth. More important, by opening its economy to China, Serbia cemented Beijing’s support against European Union pressure to recognize Kosovo’s independence.

Some in China have questioned the economic viability of Beijing’s investment spree. And outside of China, some fear that China’s ambitions would keep the authoritarian leaders of countries like Serbia in power and leave the nations deep in debt and stuck with environmentally flawed projects.

Now, China’s ambitions in the Balkan region have set up a potential clash with the European Union’s plans, with countries like Serbia placing themselves in the middle.
*******As China Moves In, Serbia Reaps Benefits, With Strings Attached, New York Times, By Barbara Surk, Sept. 9, 2017

Slovenia

*Slovenia borders Italy, Austria, Croatia and Hungary. It stretches across the Alps, the Dinaric Alps and the Pannonian Plain to the Mediterranean. “Slovenia, has a superb geographical position at the heart of the region. Intersected by traditional trade and transport routes, Slovenia is the location of choice for international companies. The two Pan-European transport corridors intersect at the Slovenian capital, Ljubljana. Shipping to Slovenia’s only cargo port, Port of Koper, means gaining 7 to 10 days for ships arriving from Asia compared with sailing to Europe’s northern ports.”

Slovenia’s key industries include logistics and distribution, automotive, chemicals and pharmaceuticals, electrical engineering and electronics, machinery, metalworking and wood-processing.

Slovenian Prime Minister Miro Cerar had a meeting with the Prime Minister of the People’s Republic of China, Li Keqiang that focused on deepening economic cooperation, the opportunities offered by the 16+1 initiative, and Slovenia’s role in the Silk Road Economic Belt and 21st Century Maritime Silk Road initiative, which it formally joined in November, 2017.

*********“The Slovenian PM placed particular emphasis during the meeting on a number of highly promising areas, such as cooperation in the civil aviation sector, the introduction of direct flights between Slovenia and China and investment in airport capacities, the automotive and high-tech industries, and science. Agriculture and tourism are two other promising sectors. The number of Chinese tourists visiting Slovenia and Europe has grown significantly in recent times, and further growth is anticipated.”
*********PM at summit of Central and Eastern European countries and China, Government of the Republic of Slovenia, November 29, 2017