IT WAS an operation carried out with remarkable cool. On December 15th, less than 500 metres away from an American navy ship, a Chinese one deployed a smaller boat to grab an underwater American drone. The object was then taken to the Chinese ship, which sailed off with it. Point deftly made.
The incident occurred in the South China Sea, in which China says the Americans have no business snooping around. By seizing the drone, it has made clear that two can play at being annoying. Mercifully no shots were fired. After remonstrations by the Americans, China agreed to give the drone back “in an appropriate manner”. It chose its moment five days later, handing the device over in the same area where it had snatched it. The Pentagon, though clearly irritated, has downplayed the drone’s importance, saying it cost (a mere) $150,000 and that most of its technology was commercially available. The drone was reportedly carrying out tests of the water’s properties, including salinity and temperature.
But it may turn into less of a game. Relations between the two nuclear powers, never easy at the best of times, are under extra strain as Donald Trump prepares to take over as president on January 20th. Mr Trump has already angered China by talking on the phone to Taiwan’s president, Tsai Ing-wen, and challenging China’s cherished “one-China” policy, crucial to which is the idea that Taiwan is part of it.
The capture of the drone took place on the outer perimeter of China’s expansive claim to the sea, about 50 miles (80km) from the Philippine port of Subic Bay, which was once home to a large American naval base (see map).
It appeared calculated to show China’s naval reach, with only minimal risk of any conflict—the American ship that was operating the drone, the Bowditch, is a not a combat vessel. Once in office, however, Mr Trump could face tougher challenges, exacerbated by China’s growing presence in the South China Sea: it appears to be installing weapons on islands it has been building there.
His two predecessors were each tested by a dangerous military standoff with China in their first months in office. With George Bush it involved a mid-air collision in April 2001 between an American spy-plane and a Chinese fighter-jet off China’s southern coast. The Chinese pilot was killed and the disabled American plane made an emergency landing at a Chinese airfield. There the crew of 24 was released after 11 days of painstaking diplomacy. The aircraft, full of advanced technology, was returned—in pieces—months later.
In March 2009 it was Barack Obama’s turn. According to the Pentagon, an American surveillance ship, the Impeccable, was sailing 75 miles from China’s coast when it was buzzed by Chinese aircraft and then confronted by five Chinese ships. First the Chinese forced it to make an emergency stop, then they scattered debris in front of the American ship as it tried to sail away. They also attempted to snatch sonar equipment it was towing. The Impeccable soon returned—this time in the reassuring company of an American destroyer.
For now, feuding between Mr Trump and China is less nail-biting. In Twitter messages, Mr Trump bashed China for taking the drone and later said China should keep it. Chinese media have in turn bashed Mr Trump. One newspaper said he had “no sense of how to lead a superpower”. Global Times, a nationalist newspaper in Beijing, said that China would “not exercise restraint” should Mr Trump fail to change his ways once in the White House. He would be wise to study the form.
Taiwanese PresidentTsai Ing-wen said on Tuesday her phone call with US president-elect Donald Trump should not be interpreted a significant shift in American policy, and stressed that both sides saw the value of maintaining regional stability.
“Of course I have to stress that one phone call does not mean a policy shift,” she told a small group of American reporters in Taipei. “The phone call was a way for us to express our respect for the US election as well as congratulate president-elect Trump on his win.”
Taiwan’s Tsai Ing-Wen initiated phone call with Donald Trump, says island’s presidential spokesmanTrump’s phone call with Tsai broke four decades of diplomatic protocol, alarming some commentators who feared it could spark a dangerous confrontation with Beijing.
Others though, especially US Republicans, have welcomed it as a sign Trump will not be bullied by Beijing, and believe the United States should offer more support to Taiwan’s democracy.
Sources in Trump’s team said the call was planned weeks in advance to establish the incoming president as a break from the past, although vice-president-elect Mike Pence described it as a “courtesy” call, not intended to show a shift in US policy on cross-strait ties.
Tsai echoed that line. “I do not foresee major policy shifts in the near future because we all see the value of stability in the region,” she said.Beijing has reacted with relative calm to the call, lodging what it called a “solemn protest” with the US government, but also underlining that its economic and diplomatic relationship with Washington depended on the US acceptance of the one-China principle, which recognises Beijing as the sole representative of the Chinese nation.
Beijing blocks Taiwan from taking part in almost all international bodies. Tsai’s office said she had told Trump during the phone call that she hoped the United States “would continue to support more opportunities for Taiwan to participate in international issues”.
Reacting to criticism of the call, Trump himself pointed out that the United States sold billions of dollars of arms to Taiwan.
Beijing has already increased the pressure on Taiwan since Tsai’s election, upset that she has not publicly endorsed the “one China” principle – although she consistently expresses the need for dialogue.
China’s Foreign Minister Wang Yi appeared to blame Taiwan for the phone call, calling it a “petty” move, and the nationalist Global Times tabloid initially recommended that Beijing should continue to talk to Trump but punish Taiwan.
Michael Cole, a Taipei-based senior non resident fellow at the China Policy Institute, University of Nottingham, wrote that this could include renewed efforts to deny Taiwan access at various multilateral organisations, the stealing of diplomatic allies, punitive economic measures and more intense or frequent military exercises aimed at Taiwan.
If that happens, the domestic support Tsai had received for her call could be countered by greater tensions with Beijing, he said, “What remains to be seen is what kind of ally Taiwan will have in Washington if and when such a shift occurs in the Taiwan Strait,” he wrote in The National Interest.
On Tuesday, there were also signs of growing concern in Beijing that Trump’s constant criticism of Beijing in his speeches and on Twitter might actually mean something. His latest salvo – complaining about China’s currency and trade policy, and its actions in the South China Sea – sparked a frustrated response in the Global Times.What does Donald Trump’s phone call with President Tsai mean for future US arms sales to Taiwan?
“Trump’s China-bashing tweet is just a cover for his real intent, which is to treat China as a fat lamb and cut a piece of meat off it,” it wrote. “China should brace itself for the possible fluctuations of the Sino-US relationship after Trump is sworn in. We must confront Trump’s provocations head-on, and make sure he won’t take advantage of China at the beginning of his tenure.
”The Communist Party mouthpiece People’s Daily took a more measured line, arguing that dialogue was vital to maintaining friendly relations and correct some of Trump’s “inaccurate” criticisms of Beijing.
“Trump’s recent demeanour has proved people’s doubts on his inexperience in diplomatic relations. In fact, Trump is not that ignorant on China and China-US relations, he has some sensible understandings and his own take on matters. But the problem is that Trump’s rhetoric shows that he only knows one side of China and China-US relations,” it wrote in a front-page editorial on its overseas edition.
“At the present, the peaceful transition of China-US relations is the key task that both countries face. It depends on joint efforts, not just good wishes from one side.”
In 2011, we tried our hand at predicting the ways in which, in the decade to come, Chinese consumers would change their preferences and behaviors.
This article takes stock of those predictions.
Why check in now? One reason is we’re about halfway to 2020. Another is a comprehensive new McKinsey survey, which follows nearly ten years of previous research that includes interviews with more than 60,000 people in upward of 60 cities in China. Along the way, we’ve bolstered our own team’s data on consumer preferences and behavior with a number of complementary analyses and models, including McKinsey’s macroeconomic and demographic studies of Chinese urbanization and income development. We’ve also interviewed academics to draw out the major trends shaping the course of the Chinese economy, such as its rapidly aging population, the growing independence of women in society, and the postponement of critical life milestones, such as marrying and having children.
We’ve done it all with the abiding belief that companies getting ahead of the trends can build their brands and offerings to fit a rapidly evolving set of consumer needs in China. Deeper and more nuanced understanding of Chinese consumers can help reveal fresh opportunities—for new entrants and incumbents alike—and signal those areas where established players may need to be more wary.
Looking back nearly five years on, it is plain that Chinese consumers are evolving along many, though not all, of the lines we’d predicted. While geographic differences persist, Chinese consumers are, on the whole, more individualistic, more willing to pay for nonnecessities and discretionary items, more brand loyal, and more willing to trade up to more expensive purchases—even as their hallmark pragmatism endures.
Evolving geographic differences
Much of the research we described five years ago highlighted the vast differences we found among consumers in China’s various cities and regions. Just as it was then, generalizing about Chinese consumers continues to be almost as difficult (and maybe as foolish) as it is to generalize about European consumers.
We predicted these differences would remain—and even grow more significant, especially in the consumption patterns and tastes that relate to discretionary items. To help companies better tailor their go-to-market approach, we grouped most cities in China into clusters based on their similarities, including their geographic proximity and the transportation infrastructure that connects them.
As the economic structure in each of the 22 biggest city clusters has evolved—and as each of them has been affected differently by the recent slowdown of China’s economy—significant differences, for instance, in consumer confidence, do indeed persist between these clusters.
For instance, some 70 percent of consumers in the Fuzhou–Xiamen city cluster, which lies on the coast across from Taiwan, said in our latest report that they are confident their income will significantly increase over the next five years. In that same report, the Byland–Shandong city cluster, which lies on the coast between Beijing and Shanghai, was comparatively pessimistic, with only 33 percent of its consumers expressing such confidence.
Furthermore, when our latest survey compared the consumers in the Shanghai area to those around Beijing and Hangzhou, certain spending attitudes also showed marked differences. For example, brand loyalty increased much faster in Shanghai (24 percent increase in three years versus just 7 percent in Beijing and 9 percent in Hangzhou), as did the willingness to pay for better or healthier products.
Despite geographic differences, there are broad similarities among Chinese consumers. These mirror the general trends economists have found among consumers around the world as economies develop. The general tendency is for consumers, as they earn more, to spend a lower percentage of their income on food, a little more on healthcare, and even more on travel and transportation, as well as on recreational activities. It was no great stretch then, in our report five years ago, to predict a significant shift in consumption from necessities and seminecessities into discretionary categories.
Sure enough, our new survey shows Chinese consumers following the anticipated pattern. When we asked how they plan to increase spending as their income increases, dramatically fewer consumers said they will increase it on food (46 percent in the latest survey, compared to the 76 percent who said they would do so three years earlier).
Responses trended slightly up for healthcare products (from 16 percent to 17 percent), and increased for travel (from 14 percent to 23 percent) and leisure (from 17 percent to 25 percent).
Aspirational trading up
In our previous predictions, we also argued that as the income of Chinese consumers grew, they would aspire to improve their quality of life by not only spending more on discretionary items, but also by shifting their spending to more expensive items in the same categories.
In necessity categories such as food, for example, we predicted consumers would be willing to spend more for healthier versions of the same products—for instance, that olive oil would grow much faster than less healthy (and less expensive) oils. In semi-necessity categories like apparel, we predicted people would buy more special-occasion and premium brands. We anticipated that the strongest beneficiaries of these changes would be in the more discretionary and aspirational categories, such as skincare and automotive. So what has happened so far?
Premium categories have really accelerated. Comparing cosmetics purchases between 2011 and 2015, 44 percent of consumers have traded up their purchases, compared with 4 percent who traded down. Even for rice, 25 percent of consumers traded up versus 3 percent who traded down. Automotive was not included in our survey, but sales data from the Traffic Management Bureau of the Ministry of Public Security in China suggest significant trading up. In 2011, 51 percent of the renminbi spent on cars by Chinese consumers were for autos cheaper than 100,000 RMB. These sales accounted for only 43 percent of the market. Cars selling for 100,000 to 250,000 RMB grew twice as fast with a compound annual growth rate (CAGR) of 19 percent versus 9 percent. And cars with price tags between 250,000 and 400,000 RMB grew the fastest of all, with 23 percent CAGR.
Emerging senior market
In 2011, we observed a big generational difference between consumers in their late 50s and early 60s, who were very conservative spenders, and all of the age cohorts younger than them.
We predicted that by 2020, as the needs of consumers over the age of 55 changed along with their economic confidence, their spending habits would follow suit, making this age group worth pursuing by consumer-product companies. If anything, we underestimated the speed and force with which this trend would unfold.
By 2015, the 55–65 age group had started to shift even faster than the rest of the population. For example, 52 percent of the people in this age group showed a preference for premium products, compared to just 32 percent in 2012. They leaped from being the most conservative age group to the one most likely to trade up. Similarly, the preference for famous brand names among these older buyers jumped by more than 20 percent, fully closing the previous difference among cohorts. As Exhibit 1 shows, these older consumers don’t shy away from indulgences, and they have grown more likely to use the Internet to research their purchases, even if they still do so less often than younger consumers.
That said, the upper age group has remained more pragmatic and cost conscious than any other age group, as we discuss in the following section.
The still-pragmatic consumer
Back in 2011, even as we were predicting changes in the behavior and preferences of Chinese consumers, we also saw ways in which their essential pragmatism would likely stay the same. For instance, we anticipated that impulse buying would remain lower than in other countries and that value for money would continue to be an important consideration when choosing products and services. Interestingly, Chinese consumers across all age groups have, in some ways, become even more pragmatic. They’re now even more likely to compare prices across multiple stores, to be more price aware, and to stock up on promotions. That said, they’re now willing to buy more often on impulse (Exhibit 2).
The individual consumer
We also predicted that as Chinese consumers aspire to a better life and trade up their purchases, they would become more discerning and gradually more individualistic. This would lead, for example, to a shift toward more healthy choices, more user-friendly products, and products and brands that better fit their personality. This could be a big opportunity for niche brands—and a threat to the mass-market brands that had won big in previous years by using scale and ubiquitous availability, supported by the trust gained by heavy advertising.
Our latest research certainly shows a decrease in consumption in categories deemed less healthy and a willingness to spend significantly more on health and more environmentally conscious categories. It also shows consumers are more likely to spend more to indulge themselves and more likely to try new technology. While their consumption choices have become more individualistic, though, it is important to note that family values continue to be at the top of their priorities (Exhibit 3).
One area our predictions missed, however, was by anticipating that consumers, as they became more individualistic in their choices, might focus less on basic product reliability and safety. Perhaps in part because of a number of more recent food scandals, however, consumers seemed more concerned with these issues in 2015 than they were before.
The increasingly loyal consumer
When our team first started researching Chinese consumers, nearly ten years ago, many of us were surprised by their fickle attitude toward brands. Fewer than half of consumers tended to stick with their favorite brands, compared, for example, with almost three quarters of US consumers.
As we debated this tendency while making our predictions, we wondered if, in the clash between pragmatism and individualism, brand loyalty would stay low, increase, or even decline. Ultimately, we decided it would increase as the emotional benefits of brands became more important to consumers and as increased choice and availability of branded products (online and off) would allow consumers to optimize for price and convenience without changing choices too often.
Our recent research confirmed the changes we anticipated. Consumers are now significantly less likely to buy a brand that is not already among their favorites, continuing the upward trend we observed in 2011 (Exhibit 4).
The modern shopper
Our 2011 predictions were bullish on e-commerce, predicting that Chinese consumers would adapt their channel choices even faster than has occurred in developed markets.
We estimated that by 2020, online consumer-electronics purchases would jump to 40 percent, from about 10 percent. More mainstream categories would rise to 15 percent, and some categories, such as groceries (now below 1 percent), could reach about 10 percent. These changes are occurring even as the enduring pragmatism and diligence of the Chinese consumer continue to be in place. Our latest research shows that consumers of all age groups are much more likely to collect information online, even on fast-moving consumer goods, than they were just three years ago.
In 2015, online food and beverages sales (excluding fresh) reached 7.2 percent: reaching our predicted 10 percent in five years looks very likely. The online share of consumer-electronic purchases, meanwhile, has reached a whopping 39 percent in 2015, and it now looks possible that by 2020 it will be about 50 percent of overall sales.
Looking from today’s perspective at our 2011 predictions, it is impressive to see the evolution of Chinese consumers—even as their most characteristic traits endure. Certainly, we’ll check in on their progress as we get ever closer to the year 2020. Making predictions may be difficult, especially about the future—as US Baseball Hall of Famer Yogi Berra famously observed. But they can still provide valuable foresight for executives.
EARLY in the summer Xi Jinping, China’s president, toured one of the country’s poorest provinces, Ningxia in the west. “No region or ethnic group can be left behind,” he insisted, echoing an egalitarian view to which the Communist Party claims to be wedded.
In the 1990s, as China’s economy boomed, inland provinces such as Ningxia fell far behind the prosperous coast, but Mr Xi said there had since been a “gradual reversal” of this trend. He failed to mention that this is no longer happening. As China’s economy slows, convergence between rich and poor provinces is stalling. One of the party’s much-vaunted goals for the country’s development, “common prosperity”, is looking far harder to attain.
This matters to Mr Xi (pictured, in Ningxia). In recent years the party’s leaders have placed considerable emphasis on the need to narrow regional income gaps. They say China will be a “moderately prosperous society” by the end of the decade. It will only be partly so if growth fails to pick up again inland. Debate has started to emerge in China about whether the party has been using the right methods to bring prosperity to backward provinces.
China is very unequal. Shanghai, which is counted as a province, is five times wealthier than the poorest one, Gansu, which has a similar-sized population (see map). That is a wider spread than in notoriously unequal Brazil, where the richest state, São Paulo, is four times richer than the poorest, Piauí (these comparisons exclude the special cases of Hong Kong and Brasília).
To iron out living standards, the government has used numerous strategies. They include a “Go West” plan involving the building of roads, railways, pipelines and other investment inland; Mr Xi’s signature “Belt and Road” policy aimed partly at boosting economic ties with Central Asia and South-East Asia and thereby stimulating the economies of provinces adjoining those areas; a twinning arrangement whereby provinces and cities in rich coastal areas dole out aid and advice to inland counterparts; and a project to beef up China’s rustbelt provinces in the north-east bordering Russia and North Korea. The central government also gives extra money to poorer provinces. Ten out of China’s 33 provinces get more than half their budgets from the centre’s coffers. Prosperous Guangdong on the coast gets only 10%.
The number, range and cost of these policies suggest the party sees its legitimacy rooted not only in the creation of wealth but the ability to spread it around. Deng Xiaoping’s economic reforms, launched in the late 1970s, helped seaboard provinces, which were then poorer than inland ones, to catch up by making things and shipping them abroad. (Mao had discouraged investment in coastal areas, fearing they were vulnerable to attack.) In the 1990s the coast pulled ahead. Then, after 2000, the gap began to narrow again as the worldwide commodity boom—a product of China’s rapid growth—increased demand for raw materials produced in the interior (see chart).
That was a blessing for Mr Xi’s predecessor Hu Jintao, who made “rebalancing” a priority after he became party chief in 2002. It also boosted many economists’ optimism about China’s ability to sustain rapid growth. Even if richer provinces were to slow down, they reckoned, the high growth potential of inland regions would compensate for that.
But convergence is ending. GDP growth slowed across the country last year, but especially in poorer regions. Seven inland provinces had nominal growth below 2%, a recession by Chinese standards (in 2014 only one province reported growth below that level). In contrast, the rich provincial-level municipalities of Shanghai, Beijing and Tianjin, plus a clutch of other coastal provinces including Guangdong, grew between 5% and 8%. Though there were exceptions, the rule of thumb in 2015 was that the poorer the region, the slower the growth. Most of the provinces with below-average growth were poor.
Of course, 2015 was just one year. But a longer period confirms the pattern. Of 31 provinces, 21 had an income below 40,000 yuan ($6,200) per person in 2011. Andrew Batson of Gavekal Dragonomics, a research firm, says that of these 21, 13 (almost two-thirds) saw their real GDP growth slow down by more than 4 points between 2011 and 2014. In contrast, only three of the ten richer provinces (those with income per person above the 40,000 yuan mark) slowed that much. In 2007 all of China’s provinces were narrowing their income gap with Shanghai. In 2015 barely a third of them were. In other words, China’s slowdown has been much sharper in poorer areas than richer ones.
There are three reasons why convergence has stalled. The main one is that the commodity boom is over. Both coal and steel prices fell by two-thirds between 2011 and the end of 2015, before recovering somewhat this year. Commodity-producing provinces have been hammered. Gansu produces 90% of the country’s nickel. Inner Mongolia and Shanxi account for half of coal production. In all but four of the 21 inland provinces, mining and metals account for a higher share of GDP than the national average.
Commodity-influenced slowdowns are often made worse by policy mistakes. This is the second reason for the halt in convergence. Inland provinces built a housing boom on the back of the commodity one, creating what seemed at the time like a perpetual-motion machine: high raw-material prices financed construction which increased demand for raw materials. When commodity prices fell, the boom began to look unsustainable.
The pace of inland growth was evident in dizzying levels of investment in physical assets such as buildings and roads. Between 2008 and last year, as a share of provincial GDP, it rose from 48% to 73% in Shanxi, 64% to 78% in Inner Mongolia, and from 54% to an astonishing 104% in Xinjiang. In the country as a whole, investment as a share of GDP rose only slightly in that period, to 43%. In Shanghai it fell.
This would be fine if the investments were productive, but provinces in the west are notorious for waste. In the coal-rich city of Ordos in Inner Mongolia, on the edge of the Gobi desert, a new district was built, designed for 1m people. It stood empty for years, a symbol of ill-planned extravagance (people are at last moving in).
Investment by the government is keeping some places afloat. Tibet, for example, logged 10.6% growth in the first half of this year, thanks to net fiscal transfers from the central government amounting to a stunning 112% of GDP last year. Given the region’s political significance and strategic location, such handouts will continue—Tibet’s planners admit there is no chance of the region getting by without them for the foreseeable future.
Tibet is an extreme example of the third reason why convergence is ending. Despite oodles of aid, both it and other poor provinces cannot compete with rich coastal ones. In theory, poorer places should eventually converge with rich areas because they will attract businesses with their cheaper labour and land. But it turns out that in China (as elsewhere) these advantages are outweighed by the assets of richer places: better skills and education, more reliable legal institutions, and so-called “network effects”—that is, the clustering of similar businesses in one place, which then benefit from the swapping of ideas and people. A recent study by Ryan Monarch, an economist at America’s Federal Reserve Board, showed that American importers of Chinese goods were very reluctant to change suppliers. When they do, they usually switch to another company in the same city. This makes it hard for inland competitors to break into export markets.
There are exceptions. The south-western region of Chongqing has emerged as the world’s largest exporter of laptops. Chengdu, the capital of neighbouring Sichuan province, is becoming a financial hub. But by and large China’s export industry is not migrating inland. In 2002 six big coastal provinces accounted for 80% of manufactured exports. They still do.
This contrast is worrying. Though income gaps did narrow after 2000 and only stopped doing so recently, provinces have not become alike in other respects. Rich ones continue to depend on world markets and foreign investment. Poor provinces increasingly depend on support from the central government.
A divergence of views
Officials bicker about this. Mr Xi asserted the Robin-Hood view in Ningxia that regional gaps matter and that redistribution is needed. “The first to prosper,” he said, “should help the latecomers.” But three months earlier, an anonymous “authoritative person” (widely believed to be Mr Xi’s own adviser, Liu He) took a more relaxed view, telling the party’s mouthpiece, the People’s Daily, that “divergence is a necessity of economic development,” and “the faster divergence happens, the better.”
It is unclear how this difference will be resolved, though the money must surely be on Mr Xi. Economically, though, Mr Liu is right. Regional-aid programmes have had little impact on the narrowing of income gaps. More of them will not stop those gaps widening. Socially, a slowdown in poorer provinces should not be a problem so long as jobs are still being created in richer ones, enabling migrants from inland to find work there and send money home. But politically the end of convergence is a challenge to Mr Xi, who has been trying to appeal to traditionalists in the party who extol Mao as a champion of equality. Wasteful and ineffective measures to achieve it will remain in place.
The two nuclear-armed neighbours have been moving to gradually ease long-existing tensions between them.
Leaders of Asia’s two giants pledged last year to cool a festering border dispute, which dates back to a brief border war in 1962, though the disagreement remains unresolved.
Meeting on the sidelines of the G20 summit in the eastern Chinese city of Hangzhou, Xi said relations had maintained a steady, healthy momentum, and should continue to increase mutual understanding and trust.
“We ought to respect and give consideration to each other’s concerns, and use constructive methods to appropriately handle questions on which there are disputes,” Xi said, in comments carried by China’s Foreign Ministry.
“China is willing to work hard with India the maintain the hard-won good position of Sino-India relations,” Xi added.
China’s Defence Ministry said last month that it hoped India could put more efforts into regional peace and stability rather than the opposite, in response to Indian plans to put advanced cruise missiles along the disputed border with China.
Indian military officials say the plan is to equip regiments deployed on the China border with the BrahMos missile, made by an Indo-Russian joint venture, as part of ongoing efforts to build up military and civilian infrastructure capabilities there.
China lays claim to more than 90,000 sq km (35,000 sq miles) ruled by New Delhi in the eastern sector of the Himalayas. India says China occupies 38,000 sq km (14,600 sq miles) of its territory on the Aksai Chin plateau in the west.
India is also suspicious of China’s support for its arch-rival, Pakistan.Modi arrived in China from Vietnam, which is involved in its own dispute with China over the South China Sea, where he offered Vietnam a credit line of half a billion dollars for defence cooperation.Modi’s government has ordered BrahMos Aerospace, which produces the BrahMos missiles, to accelerate sales to a list of five countries topped by Vietnam, according to a government note viewed by Reuters and previously unreported.
India has signed a pact with Boeing Co for purchasing four maritime spy planes at an estimated $1 billion, defence and industry sources said, aiming to bolster the navy as it tries to check China’s presence in the Indian Ocean.
India has already deployed eight of these long-range P-8I aircraft to track submarine movements in the Indian Ocean and on Wednesday exercised an option for more planes, a defence ministry source said.
“It has been signed,” the source familiar with the matter told Reuters. An industry source confirmed the contract, saying it was a follow-on order signed in New Delhi early on Wednesday.
Southeast Asian nations overcame days of deadlock on Monday when the Philippines dropped a request for their joint statement to mention a landmark legal ruling on the South China Sea, officials said, after objections from Cambodia.
China publicly thanked Cambodia for supporting its stance on maritime disputes, a position which threw the regional block’s weekend meeting in the Laos capital of Vientiane into disarray.
Competing claims with China in the vital shipping lane are among the most contentious issues for the Association of Southeast Asian Nations, with its 10 members pulled between their desire to assert their sovereignty while finding common ground and fostering ties with Beijing.
The Philippines and Vietnam both wanted the ruling, which denied China’s sweeping claims in the strategic seaway that channels more than $5 trillion in global trade each year, and a call to respect international maritime law to feature in the communique.
Backing China’s call for bilateral discussions, Cambodia opposed the wording on the ruling, diplomats said.
Manila agreed to drop the reference to the ruling in the communique, one ASEAN diplomat said on Monday, in an effort to prevent the disagreement leading to the group failing to issue a statement.
The communique referred instead to the need to find peaceful resolutions to disputes in the South China Sea in accordance with international law, including the United Nations’ law of the sea, to which the court ruling referred.
India will set up a satellite tracking and imaging centre in southern Vietnam that will give Hanoi access to pictures from Indian earth observation satellites that cover the region, including China and the South China Sea, Indian officials said.
The move, which could irritate Beijing, deepens ties between India and Vietnam, who both have long-running territorial disputes with China.
While billed as a civilian facility – earth observation satellites have agricultural, scientific and environmental applications – security experts said improved imaging technology meant the pictures could also be used for military purposes.
Hanoi especially has been looking for advanced intelligence, surveillance and reconnaissance technologies as tensions rise with China over the disputed South China Sea, they said.
“In military terms, this move could be quite significant,” said Collin Koh, a marine security expert at Singapore’s S. Rajaratnam School of International Studies. “It looks like a win-win for both sides, filling significant holes for the Vietnamese and expanding the range for the Indians.”
India, whose 54-year-old space programme is accelerating, with one satellite launch scheduled every month, has ground stations in the Andaman and Nicobar islands, Brunei, Biak in eastern Indonesia and Mauritius that track its satellites in the initial stages of flight.
The Vietnam facility will bolster those capabilities, said Deviprasad Karnik, an ISRO spokesman.
China on Thursday confirmed it is building a second aircraft carrier, as its neighbours worry about Beijing’s new assertiveness to claims in the South China Sea.
Defence Ministry spokesman Yang Yujun said the carrier had been designed in China and was being built in the port of Dalian in Liaoning province. The construction drew on experiences from the country’s first aircraft carrier, the Liaoning, bought from Ukraine in 1998 and refitted in China.
IF THE People’s Liberation Army (PLA) were a company, it would be about to lose its position as the world’s largest corporate employer. When troop cuts recently announced by Xi Jinping, China’s president, are completed in 2017, the ranks of China’s armed forces will have shrunk by 300,000 to 2m, putting it just behind Walmart, a retailer (see chart). It would still be by far the world’s largest military outfit.
When the downsizing was announced, at a big military parade on September 3rd, the cuts seemed no more significant than a round of corporate redundancies. Mr Xi’s own explanation—that they would help the PLA to “carry out the noble mission of upholding world peace”—also seemed to come straight from the gobbledygook of corporate obfuscation.
But recent commentary in China’s state media suggests that the reductions may presage something more: a long-overdue reform of the command structure of the PLA and a shift in the balance of the main military services. If so, one of the most important subsidiaries of the Chinese state is in for a shake-up.
The army has long been the senior service. Almost three quarters of active-duty personnel are soldiers. The navy and air-force chiefs did not have seats on the main institution for exercising civilian control over the armed forces, the Central Military Commission, until 2004. It was only in 2012 that an officer outside the ranks of the army became its most senior military figure. The army’s dominance is a problem at a time when China is expanding its influence in the South China Sea and naval strategy is looming larger.
Moreover, there has long been a split within the PLA between combat forces (which kill the enemy) and other operations (logistics, transport and so on) which are regarded as secondary. But in modern, high-tech warfare, non front-line services such as those responsible for cyberwarfare and electronic surveillance often matter more than tanks and infantry.
Embodying these outdated traditions is a top-heavy, ill-co-ordinated structure with four headquarters and seven regional commands. Many Chinese analysts argue that, as now constituted, the PLA would not be able to conduct modern information-intensive military operations which integrate all the services properly.
China has long talked about military reform. In late 2013 Mr Xi told fellow leaders that the command system for joint operations was “not strong enough”. It was duly announced that China would “optimise the size and structure” of the armed forces. China Daily, an English-language newspaper, said that a “joint operational command system” would be introduced “in due course”.
It now appears that these changes are under way. Mr Xi was recently quoted in PLA Daily, a newspaper, saying that “we have a rare window … to deepen [military] reform”. It is possible that Mr Xi’s anti-corruption purge, which has taken aim at two men (one now dead) who were once the country’s most powerful military figures, as well as 50 other generals, may have weakened opposition enough for change to begin.
The South China Morning Post, a newspaper in Hong Kong, recently published what it described as a radical plan devised by military reformers. This would scrap three of the four headquarters, reduce the number of regional military commands to four and give a more prominent role to the navy. It remains to be seen whether Mr Xi will go that far. But there is no doubt that, in order to fulfil what he calls China’s “dream of a strong armed forces”, he wants a leaner, more efficient PLA. To China’s neighbours, that would make it even more frightening.