Offering the people of Crimea a referendum — on whether to secede from Ukraine and join the Russian Federation — may appeal to Vladimir Putin but he should not expect support from China. For two very simple reasons: Hong Kong and Taiwan. China claims these two territories as part of China, but there are no prizes for guessing the outcome if a similar referendum (to secede) were held in either territory.
Putin’s ploy
The Wall Street Journal quotes Vladimir Putin’s justification for occupying the Crimea:
Russian President Vladimir Putin said Tuesday that Russia reserves the right to use force in Ukraine to protect Russian-speaking residents there…….”
This was a ploy used by Hitler to assert control of the Sudetenland in 1938. Sudetenland is the name given to the border districts of Bohemia, Moravia, and parts of Silesia, within Czechoslovakia, that had large German-speaking populations. Hitler encouraged Konrad Henlein, leader of the Sudeten Nazis, to rebel, demanding a union with Germany. When the Czech government declared martial law, Hitler threatened war. This led to the September 1938 betrayal of Czechoslovakia by France and Britain. Adopting a policy of appeasement, the two countries agreed to give Hitler the Sudetenland, with Chamberlain describing the crisis as “a quarrel in a faraway country, between people of whom we know nothing”. On his return to London, Chamberlain asserted that the accord with Germany signaled “peace for our time”.
Hitler enters the Sudetenland, Bundesarchiv, Bild | October 1938
In March 1939, German troops occupied the rest of Czechoslovakia. In September 1939, Hitler invaded Poland on a similar pretext of protecting the German minority from persecution. War followed, leaving more than 60 million dead. Almost two-thirds were civilians.
Hopefully Western leaders have learned from history. Appeasement is not an option.
Read more at BBC History and Wikipedia: The Sudeten Crisis.
An appeaser is one who feeds a crocodile, hoping it will eat him last. ~ Winston Churchill
China Sides With Russia on Ukraine | The Diplomat
Shannon Tiezzi writes:
China’s ambiguous position reveals its dilemma. Beijing’s instinct is to back Moscow, both to uphold the fruitful cooperation between these two nations and to stand firm against pressure from the West. However, vocally supporting Russia would violate China’s principle of non-interference. More importantly, it could arguably set a precedent of Chinese support for military intervention to protect separatists unhappy with their government—which goes against all China’s instincts, given its own issues with Tibet and Xinjiang provinces. Yet as the Global Times put it, at the end of the day power calculations mean more than principles. China’s geopolitical strategy requires Beijing to at least tacitly support Russia, and at the end of the day that argument outweighs more abstract philosophical concerns.
Read more at China Backs Russia on Ukraine | The Diplomat.
As China looks on, Putin poses risky dilemma for the West | Reuters
David Rohde at Reuters quotes James Jeffrey, a retired career U.S. diplomat:
Jeffrey said the days and months ahead will be vital. If Putin faces few long-term consequences for seizing Crimea, it will set a precedent for China and other regional powers who may be considering establishing 19th century-style spheres of influence of their own.
“The Chinese,” Jeffrey said, “are in the same position.”
Read more at As China looks on, Putin poses risky dilemma for the West | Reuters.
Shanghai selling pressure
A sharp fall below zero on 13-week Twiggs Money Flow warns of selling pressure on China’s Shanghai Composite Index. Breach of support at 1950 is likely and would offer a target of 1800*.
* Target calculation: 1950 – ( 2100 – 1950 ) = 1800
Michael Pettis summarizes the four challenges facing China:
- China is over-reliant on credit to generate growth;
- Attempts to boost consumption will reverse the long-standing subsidy of new investment;
- Attempts to resolve excess capacity also slow growth; and
- Unrecognized bad debt on bank balance sheets mean that growth is overstated.
China weakens
China’s Shanghai Composite is headed for 1950 after breaking support at 2080 to confirm a primary down-trend. Twiggs Money Flow below zero indicates selling pressure.
* Target calculation: 2100 – ( 2250 – 2100 ) = 1950
Russia 1998 crisis haunts Deutsche Bank analyst seeing China bust | Livemint
When the Deutsche Bank AG equity strategist [John-Paul Smith] looks at the country [China], he says he detects some of the same signs of a financial meltdown that led him to predict Russia’s 1998 stock market crash months in advance. China’s expansion is being fueled by soaring corporate borrowing, a high-risk model that needs to be replaced by the kind of free-market measures and budget cuts that fed Russia’s growth in the aftermath of the country’s default and subsequent 44% monthly tumble in the Micex Index, Smith said.
There is potential for a debt trap in industrial companies which can trigger an economy-wide financial crisis as early as next year, Smith said in an interview from London on 12 December, a day after he issued a report predicting China’s slowdown will lead to a 10% decline in emerging-market stocks next year. “If I am wrong on China, I am wrong on everything.”
Read more at Russia 1998 crisis haunts Deutsche Bank analyst seeing China bust – Livemint.
EconoMonitor » Beijing’s New Leaders Are Right to Hold Back
Michael Pettis argues that China cannot stimulate its economy out of trouble:
There are still bulls out there who insist that China is out of the woods and making a strong recovery, for example former Deputy Governor of the Reserve Bank of Australia, Stephen Grenville, who argues in his article strangely titled China doomsayers run out of arguments:
“The missing element from the low growth narrative is that unemployment would rise, provoking a stimulatory policy response. China would extend the transition and put up with low-return investment recall that when unemployment was the issue, Keynes was prepared to put people to work digging holes and filling them in rather than have unemployment rise sharply. To be convincing, the low-growth scenario needs to explain why this policy response will not be effective.”
It seems to me that the reason why simply “provoking a stimulatory policy response” won’t help China has been explained many times, even recently by former China bulls. Of course more stimulus will indeed cause GDP growth to pick up, as Grenville notes, but it will do so by exacerbating the gap between the growth in debt and the growth in debt-servicing capacity. Because too much debt and a huge amount of overvalued assets is precisely the problem facing China, it is hard to believe that spending more borrowed money on increasing already excessive capacity can possibly be a useful resolution of slower Chinese growth.
Read more at EconoMonitor : EconoMonitor » Beijing’s New Leaders Are Right to Hold Back.
Beware China’s civilian-military relationship | The Japan Times
Masahiro Matsumura, professor of international politics at St. Andrew’s University (Momoyama Gakuin Daigaku) in Osaka, writes
…….the Chinese state apparatus is largely detached from the military, while the party’s top civilian leaders have only a loose grip on the generals.
Worse still, the current fifth generation of civilian leaders is made up of veritable dwarfs in military affairs. By contrast, the PLA’s leaders have become increasingly professionalized, but without the tempering influence of effective civilian control, which might well collapse entirely if China’s leaders continue to accept unauthorized military actions, particularly in the East or South China Sea, as faits accomplis. Line commanders could take advantage of the equivocality of civilian policy, particularly given the military’s growing political clout and the CCP’s dependence on popular nationalist sentiment.
Read more at Beware China’s civilian-military relationship – The Japan Times.
China: A Billion Strong but Short on Workers | WSJ.com
KATHY CHU at WSJ reports:
This year, service-related positions — such as those in retail, travel and leisure — for the first time will account for more of the country’s gross domestic product than industrial-sector jobs, J.P. Morgan Chase predicts.
Government figures show the service sector created 37 million new jobs in the past five years, compared with 29 million in the industrial sector, which includes manufacturing, construction and mining.
Read more at China: A Billion Strong but Short on Workers – WSJ.com.