November 03, 2012

Vishwa Bandhu Gupta exposes Sonia Gandhi Black Money

The Downside of Debt


Bill Bonner Cristina

 Fernandez de Kirchner, president of Argentina, will never be remembered as a great economist. Nor will she win any awards for 'accuracy in government reporting.' Au contraire, under her leadership, the numbers used by government economists in Argentina have parted company with the facts completely. They are not even on speaking terms. Still, Ms. Fernandez deserves credit. At least she is honest about it. 

The Argentine president visited the US in the autumn of 2012. She was invited to speak at Harvard and Georgetown universities. Students took advantage of the opportunity to ask her some questions, notably about the funny numbers Argentina uses to report its inflation. Her bureaucrats put the consumer price index — the rate at which prices increase — at less than 10%. Independent analysts and housewives know it is a lie. Prices are rising at about 25% per year. 

At a press conference, Cristina turned the tables on her accusers:

"Really, do you think consumer prices are only going up at a 2% rate in the US?"

Two percent is what the US Bureau of Labor Statistics gives for consumer price inflation in the US. But in North America as in South America, the quants treat numbers like Gitmo prisoners. The goal is to get them to say what they want, without leaving marks. Cristina is right. All the numbers will bend under pressure; you might as well twist them into a shape that suits you. 

The 'inflation' number is probably the most important number the number crunchers crunch. Because it crunches all the other numbers too. If you say your house went up in price, we need to know how much everything else went up in price too. If your house doubled in price while everything else roughly doubled too, you realized no gain whatsoever. Likewise, your salary may be rising; but it won't do you any good unless it is going up more than the things you buy. Otherwise, you could be standing still while the whole world moves ahead without you. 

GDP growth itself is adjusted by the inflation number. If output increases by 10%...yet, the CPI is also going up at a 10% rate...real, after inflation, output flattens out. Pensions, taxes, some forms of insurance — the CPI number is used to correct distortions caused by inflation. But if the CPI number is itself distorted, then the whole shebang gets twisted. 

You may think it is a simple matter to measure the rate of price increases. Just take a basket of goods and services. Follow the prices. Trouble is, the stuff in the basket tends to change. You may buy strawberries in June, because they are available and reasonably cheap. Buy them in March, on the other hand, and they'll be more expensive. You will be tempted to say that prices are rising, because that is what they are actually doing.

The number crunchers do not necessarily deny the truth; they merely redefine it. First, they make 'seasonal adjustments' in order to keep the strawberries out of the March shopping basket. Second, they make substitutions; when one thing becomes expensive, shoppers switch to other things. The quants insist that they substitute other items of the same quality, just to keep the measurement straight. But that introduces a new wrinkle. 

Let us say you need to buy a new computer. You go to the store. You find that the computer on offer is about the same price as the one you bought last year. No CPI increase there! But you look more closely and you find that this computer is twice as powerful. Hmmm. Now you are getting twice as much computer for the same price. You don't really need twice as much computer power. But you can't buy half the computer. So, you reach in your pocket and pay as much as last year.

What do the BLS statisticians do with that information? They maintain that the price of computing power has been cut in half! They can prove that this is so by looking at prices for used computers. Your computer, put on the market, would fetch only half as much as the new model. Ergo, the new model is twice as good.

This reasoning does not seem altogether unreasonable. But a $1,000 computer is a substantial part of most household budgets. And this "hedonic" adjustment of prices exerts a large pull downward on the measurement of consumer prices, even though the typical household lays out exactly as much this year as it did the last. The typical family's cost of living remains unchanged, but the BLS maintains that it is spending less.

You can see how this approach might work for other things. An automobile, for example. If the auto companies began making their autos twice as fast...and doubling the prices...the statisticians would have to ignore the sticker prices and conclude that prices had not changed. 

Or how about other things? A woman buys a new pair of shoes for $100. The next year, the shoes are out of style. She tries to sell her old shoes at a used clothing shop. The shoes bring only $5 — a 95% drop. Does that mean that a new pair of shoes is 20 times as valuable? If that is so, assuming she buys another pair for $100, has really gotten $2,000 worth of shoes?

Hedonics, seasonal adjustments, substitutions — the statisticians can trick up any number they want. 

BLS will give you a precise number for the CPI, as though it had a specific, exact meaning. But all the numbers are all fishy; and economists build with them as though they were bricks. A flapping cod is piled on a slippery trout on which is placed a slithering eel. And upon this squirming, shimmying mound they erect their central planning policies.

The nuances of the "inflation" number go far beyond just statistical legerdemain. What is inflation? Does the word refer only to the rise in consumer prices? Or to the increase in the supply of money? The distinction has huge consequences. Because, in the years following the '08-'09 crisis, it was the absence of the former that permitted central banks to add so much to the latter. In other words, their measurement of 'inflation' not only had far ranging consequences for bondholders, investors, retirees and so forth, it also created a huge distortion in the entire planet's monetary system. As long as consumer price inflation didn't manifest itself in a disagreeable way, central bankers felt they could create as much monetary inflation as they wanted. Increases to the world's monetary footings — monetary inflation of the most basic sort — caused stocks, bonds and commodities to rise. On the whole, this was a fairly agreeable form of inflation. Central bankers wished to continue inflating as long as they were able.

Here again, their engineering was a marvel of contradictions and false pretenses. The real rate of consumer price increases in the US is unknowable. But it is not unimportant. People place their bets. Depending on the CPI number, some people win and some lose. And the outfit that has the biggest bet of all is the very same as the outfit that keeps score. The government wants the lowest CPI possible. It helps keep revenues up and costs down. Social Security payments, for example, are adjusted to CPI increases. So are the feds' inflation-protected bonds. And taxes, too. 

But a low consumer price inflation figure also allows central banks to continue inflating the world's money supply. They've added trillions of dollars to the banking system directly, and trillions more to asset prices, and to the world's debt. Rising CPI inflation would have scared lenders. Instead, low price increases reassured them so completely they buy more and more US bonds at higher and higher prices.

Since '07, debt levels have risen, like water in a flooded basement, even as households desperately tried to bail themselves out. At first, the extra debt was taken on almost entirely by government. But by the autumn of 2012, consumers too had given up bailing and decided to join the fun. This was reported in the press as a harbinger of good times to come:

"Rise in household debt might be sign of a strengthening recovery."

After reducing debt for 14 quarters, households finally had enough. They stepped up to the checkout cards in hand...and did their patriotic duty. They bought stuff. They went deeper into debt. Once again, they were buying stuff they didn't really need with money they didn't really have. 

Economists celebrated the event dumbly, like a turkey looking forward to Thanksgiving dinner. It was as if they thought debt was not subject to the law of diminishing if there were no downside to it. 

Numbers help us define...detail...precise...measure and test reality. But we understand it, not with digits but analogs. We say "this is just like..." or "it reminds me of..." Literature...philosophy...history and economics help us to make sense of the phenomena around us. We need stories with plots, heroes, villains and adversity. And stories with a moral.

The old economists knew this. The 'two Scottish Adams' — Adam Smith and Adam Ferguson — who were the founders of economics as we know it, did not even call themselves economists. If they had had business cards to hand out, they probably would have listed their profession as 'moral philosophers.' They studied the data...the case histories...the evidence...not for the numbers, but for the moral of the story. 

In a sense, the real problem in the 21st century was that economists had picked the wrong analogy...or the wrong story. They thought they were scientists. They thought economics could be treated as though it were a branch of science, where bounded problems could be reduced to numbers and then manipulated and solved. Of course, it was no such thing. There were no controlled experiments; initial conditions were always different. There were no reproducible results...and no hypotheses that could ever be disproven. That's why many of the worst ideas in economics never go away, even though they have had disastrous results every time they've been applied. 

We've already seen how quickly this analogy to science breaks down. The planners, fixers and improvers really can't measure what they think they can measure. More than that, they can never know whether they are coming or going, doing good or bad.

But we're going to keep an open mind. While it is definitely true in the abstract that economists can't even know what the exact unemployment rate is...or can't really tell whether increasing GDP would make people better or worse off...perhaps it is nevertheless true that their good intentions (if that's what they are) somehow triumph over their own clumsy incompetence. Perhaps like prayer, there may be no understanding of how it works, but if you believe in it...perhaps it helps.

Besides, assuming as we do for the moment that they are headed in the right direction, shouldn't they keep going? Isn't striving to make the world a better place a good thing in itself? Where's the downside? 

Ah, you'll have to tune in tomorrow...


Bill Bonner
for The Daily Reckoning




The 18th Congress of the Communist Party of China (CPC) is all set to meet at Beijing from November 8, 2012. Hu Jintao will be handing over as the General Secretary of the Party to Xi Jinping at the Congress and a new Standing Committee of the Politbureau, a new Politbureau and a new Central Committee will be elected at the Congress. They will be in office till the 19thCongress  in 2017. Normally, a new Central Military Commission (CMC) of the Party should also be elected at the Congress.

2. Normally, the members of the new party organs are chosen through consensus by the outgoing Central Committee and formally elected by the new Congress.The outgoing party organs, which assumed office  at the 17th Congress in 2007, are presently meeting in Beijing to reach a consensus on the composition of the new party organs to be formally elected next week and to approve the report on the work done by the outgoing organs for submission to the 18th Congress.

3. Hu Jintao as the outgoing General Secretary and Xi Jinping as his successor should be playing the leading role in finalising the composition of the new party organs.Speculation from Beijing indicates that Jiang Zemin, a strong personality from Shanghai, who was the predecessor of Hu as the Party Secretary and as the Chairman of the Party CMC and who still wields considerable influence in the party circles in Shanghai,  has been playing an important role in the finalisation of the composition of the new party organs and that under his influence, a neo conservative political leadership, which wants to go slow on political reforms, seems to be well-poised to occupy key positions under Xi.

4. The importance of political reforms to sustain the economic reforms, which was the keynote of the policies advocated by Prime Minister Wen Jiabao, has been given less importance in the deliberations preceding the new Party Congress. Improving people's livelihood, incremental political reforms and innovative democracy are the keynotes of the new policy being advocated.

5. Any idea of a multi-party democracy is firmly rejected. The firm leadership of the Communist party, the modernisation of the functioning of the party and the improvement of inner party democracy to provide for greater transparency in its functioning, better choice for the party cadres in the election of the party functionaries and greater accountability of the functionaries to the cadres and the people are now stressed as the new features of innovative democracy.

6. The new party functionaries, who are expected to take over under XI, areprojected in the speculationas  advocates of a play safe policy in respect of political reforms. Economic and political stability and not political experimentation will be their objective.

7.In an article published on November 3,2012 , the "People's Daily", the party daily, said: "The social unrest caused by Russia's "shock therapy," Latin America's "radical reform," or certain African countries' copying of the U.S. political system proves that slavish imitation of Western democracy will lead to turmoil. Democracy takes various forms according to different national condition, and good democracy should first suit a country's national conditions. China has attached great importance to the people's livelihood and incremental reform, and pursued suitable democracy through gradual innovation in a pragmatic manner. Democracy is not only a system of government, but also a way of life which meets people's needs. Admittedly, as public awareness of the rights to know and participate as well as the rule of law increases, democracy in China has not reached the level many people expect. However, the country is making steady progress in improving its democracy."

8. Thus, the new party leadership, which will be taking over next week, is trying to reduce expectations of a Chinese spring or a brave new world of Chinese democracy. This is not the time for political experimentation. That is the message that has been coming out from Beijing. ( 3-11-12)


(The  writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai, and Associate of the Chennai Centre For China Studies. E-mail:  Twitter @SORBONNE75)


November 02, 2012

Jai Jawan, Jai Kisan: India’s Defence Vision

With Agni, Brahmos missiles, Arjun MBT, Tejas LCA and the induction of a stealth fighter in ten years, Indian defence posture will have a profile that will intimidate any aggressor – adequately.

A Puff Of Dust
Walk The Talk …
Trouble In The Barrio
Parity & Proportion
You Talkin’ To Me
The Big Whale
F-22 Raptor – Running or Hiding?
Models From Russia
AESA, Waisa, Kaisa
By 2025
What about China
Hat Tip
Short, Little Man With A Big Dream
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India’s collective memory plays strange tricks.
British Raj no longer evokes outrage or indignation in India, within a few decades after the end of colonial rule. The same British Raj, who were overseers of India’s rapid decline from the richest economy to the poorest in a short span of 100 years. Britain’s rapid decline after the loss of India rarely registers on Indian minds.
Inspite of a nuclear neighbourhood, defence issues are not electoral hot-buttons in India’s mind-scape. China and Pakistan apart, the three other nuclear powers, (USA, Britain, France) also have military presence in India’s immediate vicinity. In India’s collective memory, its remarkable rise from the Great Bengal Famine of 1941 to overflowing food godowns in 2011 is lost in the media din and NGO activism.
But then, this par for the course, for a society that keeps re-indexing even heroes like Raghu Ramachandra and Yadu Krishna.
65 years later, after the end of colonial rule, the Indian State, is trying to be all things to all people – with giant-schemes like MNREGA and AADHAR. LB Shastri’s policy of Jai Jawan, Jai Kisancommitted the Indian State to two objectives – India will not go hungry and India will not back down, militarily. To an India recovering from colonial loot of the British Raj, these were the two non-negotiables.
Ten years after Shastri’s Jai Jawan Jai Kisan policy, by 1975, India had achieved food security at a national level. Defence parity with immediate and emerging threats was another matter – and will probably take till 2025.
Today these may seem within reach – but back then in 1965, it the dark night seemed stretch endlessly ahead.
Kargil Infographic - Source & courtesy -
Kargil Infographic – Source & courtesy –
India shares borders with two nuclear neighbors – unlike any other country in the world. India has also fought four wars with Pakistan, one with China and managed another war-scenario with Portugal.
Pakistan had to eat crow on all four occasions. Indian acceptance of Chinese ceasefire, made the Chinese campaign look better than the probable outcome had the war continued. India’s Goa campaign, does not even find a mention in Indian military history – even though India stared down a Western-colonial power.
Fifty years after LB Shastri’s death, by 2016, India will probably start seeing military parity in the modern era. Behind this parity, are two developments in India’s defence posture.
One is the Indo-Russian development of the Brahmos missile. The world’s only supersonic missile, at many times the speed of sound, the Brahmos completes its attack in 5-10 minutes of its launch. There is currently no system whatsoever that can stop a Brahmos. Based on ramjet engines, Brahmos has no global rival.
Flying just 15 metres above water level, Brahmos is virtually invisible to radar, when launched from a warship. Fully mobile, it can stop an invading land-unit. The air-version, to be deployed soon, will probably shoot down an enemy aircraft even before it enters Indian airspace.
The Americans, without a similar missile, have been talking-up an electromagnetic railgun – which can only be launched from nuclear warships, due to enormous electrical requirements. These railguns under development for more than 60 years now, cannot knock out a Brahmos. Being very compact,Brahmos can be launched from multiple platforms.
Further, Indo-Russian teams of defence scientists are developing Brahmos from supersonic to hypersonic missile. The Brahmos uses a ramjet engine technology that even the US or the EU don’t have. Brahmos effectively creates a 200 km barrier in Indian airspace, at borders and on the coastline – at a very low-cost. Guided by the Russian Glonass system, Brahmos is not dependent on the American GPS system.
By 2025, India would have deployed enough numbers of Brahmos missiles, to deter any invader.
Two – The other major development is the T-50 Fifth-Generation Fighter-Aircraft (FGFA). Currently, the only FGFA actually deployed is the the US F-22 Raptor. Grounded due to faulty oxygen-supply system, the F-22 may never be able to match the T-50 FGFA, based on current evaluations – and comes at more than three times the expected price of the Indo-Russian T-50 FGFA.
Interestingly, India’s choice of Rafale, in the MMRCA tender, could be a crucial technology bridge that will enhance the Russian FGFA into a super-FGFA Indian version – like how the SU-27 became the SU-30MKI. For long, the SU-30 was a export product – and recently, the Russian airforce has ordered a domestic version, which is based on the Indian design.
The choice of Rafale is closely tied to transfer of AESA-radar technology – which currently, apart from US and Russia, no other country has. The Eurofighter Typhoon is expecting to get that technology a few years down the road. France is forming a JV-company between Thales and BEL to produce the AESA radar in India.
Curiously, the US has decided to stop the manufacture of F-22 Raptor aircraft. The F-22 Raptor aircraft was also not used in recent Libya operations or sold to any foreign US ally. But, while the US was ‘unwilling’ to sell the F-22 Raptor, the US has pressured eight of its allies to join the newer F-35 Joint Strike Fighter (JSF) project. So, while the US was reluctant to sell the older F-22 Raptor, it is very eager to sell the F-35 to it allies and client-States.
Was the US hiding ‘secret’ technology – or hiding technology defects?
The FGFA for USA + 8 Allies - The F-35 (JSF) Variants
The FGFA for USA + 8 Allies – The F-35 (JSF) Variants
The next FGFA from the US,the F-35 is nearly US$250 billion in development,technically unstable, facingcritical problems – and not yet in production. In contrast, the Indo-Russian T-50 FGFA is currently budgeted at less than US$40 billion.
Delays and cost overruns have plagued the F-35 Joint Strike Fighter – which at $238bn is the Pentagon’s biggest weapons procurement programme – and one variant of the plane suffered cracks in the bulkhead after it had flown just 1,500 hours out of a planned 16,000.The US Air Force has also had to ground dozens of F-22 fighter jets for the second time this year, after a pilot had experienced oxygen deficiency in the cockpit, officers reported in early October. The announcement follows the air force’s highly unusual step of grounding the entire Raptor fleet between May and mid-September, to allow engineers to investigate possible problems with the plane’s oxygen supply
Elaborate tests and safety measures have nevertheless failed to locate the precise source of the fault. The latest case follows around a dozen previous incidents affecting F-22 pilots over a three-year period, the circumstances of which the US Air Force is reluctant to discuss in detail.
At a cost of nearly $150 million a plane, the F-22 Raptor is designed mainly for dogfights against rival fighter jets, and the radar-evading aircraft were not deployed in the Nato-led campaign over Libya.
Enormously complex, the F-35 project aims to deliver three versions of the aircraft.
Cost apart, there is also the matter of design-logic. While the F-35 seeks to attack deep in enemy territory, relying on radar evasion through stealth technology, the T-50 FGFA is designed to ensure that air dominance is not lost. While the F-35 relies on stealth technology, the T-50 depends to extreme maneuverability to win an aerial dog fight. The idea of deep-penetration-and-strike mission by a stealth aircraft was thoroughly discredited after the Serbs shot down America’s stealth aircraft, F-117 Nighthawk with a vintage Soviet-era S-125Neva anti-aircraft system in 1999.
The attack role of the F-35 will increasingly be the domain of cheaper missiles and drones – not expensive stealth aircraft.
The Russians are not looking to make the aerodynamic tradeoffs to stealth that the US has made, for a variety of reasons including the effectiveness and costs of such stealth. Given that stealth in the real world would be far less effective than the advertised “metal marble” because the enemy may not always come exactly head on, nor use the radar’s that the F-22s were tested with. Nor would any future competent enemy only have one radar on (but rather a plethora of ground and airborne radars at various frequencies). Further, wear and tear in a real world operational scenario are likely to reduce stealth.
On the other hand, T-50 will do a better job on denial of air-superiority, even against stealth aircraft. Since stealth aircraft have a small and low radar profile, a missile attack on a stealth-fighter will probably be unsuccessful – and a T-50 type of fighter plane may be a better aircraft for an aerial dog-fight with a stealth fighter.
Main performance characteristics of Sukhoi T-50 fighter jet and similar foreign aircraft  |  Source & credit embedded in image.
Main performance characteristics of Sukhoi T-50 fighter jet and similar foreign aircraft | Source & credit embedded in image.
With three prototypes and nearly 150 flights to its credit, the T-50 FGFA will start rolling off Russian assembly lines in four years.
Twenty-one months after first flight at Komsomolsk-on-Amur in Siberia, the Sukhoi T-50 PAK-FA fleet recorded its 100th flight on 3 November.
For perspective, the Lockheed Martin F-35 programme needed 31 months from the first take-off by the AA-1 test aircraft to pass the 100th flight mark.
Europeans would still be tinkering with their 4G++ Euro-fighter Typhoon – even as India will be a FGFA manufacturer.
One notable feature that India wants is a 360° active electronically scanned array (AESA) radar rather than the more conventional AESA found on the original Russian aircraft. A 360° AESA would be a first for any fighter on the planet, and it will undoubtedly be expensive.
The 360° active electronically scanned array (AESA) radar is already in use on the sub-sonic Indian indigenous Airborne Early Warning and Control System (AEW&C), mounted on a Brazilian Embraer aircraft using about 60 antennae and sensors.
Work on the crucial transceiver unit is happening in parallel. Meanwhile the Russians are developing an AESA system using X-band radar antenna containing over 1,000 solid transmit/receive modules. India’s own development direction seems to be different from others. Russia’s offer to fully transferAESA radar technology of Zhuk-ME system, from Phazotron-NIIR Corporation did not get much traction in India.
The Chinese J-20 FGFA, by most expert opinion, is dead in water – without an engine, AESA radar, technologies that the Chinese lack.
The Chinese J-20 (Mighty Dragon) fifth-generation fighter jet program is advancing in truly huge strides. The jet has already made over 60 test flights, performing elements of aerial acrobatics.
In 2009, General He Weirong, Deputy Commander of the People’s Liberation Army Air Force estimated that the J-20 would be operational no earlier than in 2017-2019. Now it appears Chinese engineers have done a great job and the jet is much closer to being ready than expected.
Created by Chengdu Aircraft Corporation, this heavy fighter jet is the first military plane China has constructed on its own, without visible attempts at copying foreign technology. It resembles neither the American Raptor F-22, nor the Russian T-50 PAK-FA.
Though peculiar forms of the jet and technical decisions allegedly realized in the vehicle might be questionable, one thing about this plane is an established fact.
As of now, the J-20 flies with two Russian AL-31F jet engines it borrowed from the Russian Su-27 fighter jet that entered Chinese service in the mid-1980s.
China also tried to put engines of their own on a second test J-20 vehicle, but the copycat of the Soviet engine AL-31F made by China is not in the same league as the Russian analogue for reliability and durability.
The real problem is both AL-31F and Chinese version are engines of the previous generation.
No question the Chinese jet is a prototype model and technology demonstration vehicle called to test new equipment and technology. Defined as a technology showroom, it may fly whatever engines its creator considers possible. But China has no working engine for a 5G jet.
With the Brahmos and T-50 FGFA, Indian defence will be able to hold on against any force in the world. By 2025, India’s Arjun MBT platform will be stable. The LCA will be in a position to bulk up the IAF. Indian shipyards will start delivering aircraft carriers. Agni missile family will make for a formidable missile array that can attack targets 5000 miles away.
Most importantly, this military parity will be achieved at a cost that India can sustain – and only India can manage.
Following India, Russia has taken some baby-steps in initiating defence ties with Israel and France. Based on an expanding defence trade with India, by 2025 France and Israel may join the Indo-Russian defence alliance.
This will further deepen the technology base – and drive down costs, to levels that Indians apart, no one even imagines.
If China has been given less importance in this post, it is for a reason.
Between 1990-2000, as the Soviet economy went into a tailspin, Russian defence producers had no customers and no money. Cut-off from Russian State funding, defence production and research suffered.
A year after the collapse of the Soviet Union, a cash-strapped Kremlin began selling China a chunk of its vast military arsenal, including the pride of the Russian air force, the Sukhoi-27 fighter jet.
For the next 15 years, Russia was China’s biggest arms supplier, providing $20 billion to $30 billion of fighters, destroyers, submarines, tanks and missiles. It even sold Beijing a license to make the Su-27 fighter jet—with imported Russian parts.
Today, Russia’s military bonanza is over, and China’s is just beginning.
After decades of importing and reverse-engineering Russian arms, China has reached a tipping point: It now can produce many of its own advanced weapons—including high-tech fighter jets like the Su-27—and is on the verge of building an aircraft carrier.
Not only have Chinese engineers cloned the prized Su-27′s avionics and radar but they are fitting it with the last piece in the technological puzzle, a Chinese jet engine.
In the past (few) years, Beijing hasn’t placed a major order from Moscow.
Now, China is starting to export much of this weaponry, undercutting Russia in the developing world, and potentially altering the military balance in several of the world’s flash points.
Russia’s predicament mirrors that of many foreign companies as China starts to compete in global markets with advanced trains, power-generating equipment and other civilian products based on technology obtained from the West.
In this case, there is an additional security dimension, however: China is developing weapons systems, including aircraft carriers and carrier-based fighters, that could threaten Taiwan and test U.S. control of the Western Pacific.
Chinese exports of fighters and other advanced weapons also threaten to alter the military balance in South Asia, Sudan and Iran.
But no other Asian country has sought to project military power—and had the indigenous capability to do so—since Japan’s defeat in 1945.
China’s rapid mastery of Russian technology raises questions about U.S. cooperation with the civilian faces of Chinese arms makers.
While Russia worries about intellectual property, other countries are concerned about security. The arms programs China initiated two or three decades ago are starting to bear fruit, with serious implications for the regional—and global—military balance.
The J-11B is expected to be used by the Chinese navy as its frontline fighter, capable of sustained combat over the entire East China Sea and South China Sea.
Aircraft carriers and J-15 fighters would further enhance its ability to stop the U.S. intervening in a conflict over Taiwan, and test its control of the Western Pacific.
China’s arms exports could have repercussions on regions in conflict around the world. Pakistan inducted its first squadron of Chinese-made fighter jets in February, potentially altering the military balance with India.
Other potential buyers of China’s JF-17 fighter jet include Sri Lanka, Bangladesh, Venezuela, Nigeria, Morocco and Turkey. In the past, China has also sold fighters to Sudan.
The potential customer of greatest concern to the U.S. is Iran, which purchased about $260 million of weapons from China between 2002-2009, according to Russia’s Centre for Analysis of the Global Arms Trade.
Su-30MKI Fighter that has become the mainstay of IAF. Image source & credits embedded.
Su-30MKI Fighter that has become the mainstay of IAF. Image source & credits embedded.
Indian and Chinese defence contracts played a huge role in savingRussian defence industry. During this same period, to overcome supply disruptions, the Chinese decided to expropriate Russian defence products without licence or consent.
It said that while more than 90% of China’s major conventional weapons imports came from Russia between 1991 and 2010, the volume of imports had declined dramatically in the last five years.
Russia’s diversified customer base, which allowed it to take a tougher negotiating stance with China, particularly given anxiety about how China would use its purchases.
“Russia is unwilling to provide China with advanced weapons and technology, primarily because it is concerned that China will copy Russian technology and compete with Russia on the international arms market,” said Holtom.
“The nature of the arms transfer relationship will increasingly be characterised by competition rather than co-operation.”
Russians cite many cases where China has ‘copied’ Russian defence items.
It is an open secret that China has copied quite a number of Russian weapons. The list begins with Soviet I-15 and I-16 fighter jets, not to mention the legendary Kalashnikov rifle.
The list continues with D-30 howitzer, BMP-1 armored vehicle, BMP-3, Malyutka anti-tank complex, An-12 military cargo plane, Strela-2 shoulder-fired missile complex, S-300 missile system, Msta-S howitzer, Smerch volley-fire system and other weaponry. The last rip-off report was referred to Su-33 deck-based fighter jet.
China previously had the licensed production of Soviet Romeo submarines, which were dubbed in China as “Type 39.” Chinese engineers acknowledged that their developments were based on Russian state-of-the-art defense technologies. However, they vehemently denied the fact of blunt copying claiming that that they had considerably improved them.
It may seem strange that Russia has not set forth any claims to China yet. However, China is Russia’s long-time partner in the field of arms trade and Russia is not willing to ruin relations with China. Does Russia overestimate the importance of defense cooperation with the Asian giant? China usually makes small one-time purchases that do not bring much profit to Russia. Moreover, the purchases are made to simply copy the original. For example, the Chinese bought one or two radars for fighter jets from Russia only to launch their serial production several years later.
For close to fifteen years, China alongwith India were major buyers of Russian defence products.
For almost two decades, it was close to the perfect match of buyer and seller.
Denied weapons and defense technology from the West, China was almost totally reliant on Russia for the hardware it needed to jump-start an ambitious military buildup. And while the Russian economy teetered in the aftermath of the Soviet Union’s collapse, huge orders from China helped keep a once-mighty defense industry afloat.
After orders peaked at more than $2 billion a year early in this decade, Chinese arms deals with Russia shrank to almost nothing in 2006, and no major new contracts are in the pipeline, according to Russian, Chinese and U.S. defense experts.
In the meantime, Russia – which, with its economy booming, is no longer dependent on arms sales to China.
Some Chinese analysts suggest that Russia, the world’s second-ranked arms supplier behind the United States, is also concerned about the threat of competition from the Chinese defense industry.
Russian analysts estimate that arms deliveries to China from 1992 to 2006 were valued at $26 billion.
Total Russian arms exports over that period were estimated at more than $58 billion.
With a Western embargo on arms sales to China having been in place since the Tiananmen (1989), it was these weapons from Russia that allowed the People’s Liberation Army to reduce a yawning gap in technology and firepower.
Chinese experts say the army wants access to the most advanced Russian weaponry, including strategic bombers, tanks, attack helicopters and manufacturing technology for high-performance aircraft engines.
A decade ago, as military spending shriveled, a slump in orders from China would have been disastrous for Russian arms makers. That is no longer the case, with the Russian economy growing at 8.1 per cent on the back of rising energy and commodity exports, according to official economic statistics.
With Moscow running a budget surplus, there are orders in the pipeline to supply the Russian military with hardware that until recently could only be sold abroad. And overall arms exports remain buoyant, particularly to India, a long-term client that Moscow views with far less suspicion than China.
Russia has also signed lucrative arms deals with new customers including Algeria and Venezuela in recent years.
To add to Beijing’s frustration, some of the Russian transfers to India include weapons and technology that Moscow refuses to supply to China. Moscow and New Delhi agreed to begin the joint development of a new, so-called fifth-generation fighter, the Russian government announced in October.
This aircraft would be a potential rival in performance to the U.S. F-22 Raptor, defense analysts say.
India also agreed last year to buy another 40 Su-30MKI fighters from Russia for $1.5 billion in addition to an earlier order for 140 of these aircraft. Some military experts say this versatile, twin-engined jet is probably the best fighter and strike aircraft in the world. But Russia has not offered it to China. And Moscow is offering to sell India its latest fighter, the MiG-35.
In nuclear submarine technology, Russia has also been more generous with India than with China, naval experts say.
Still, with the Western arms embargo on China still in place, most analysts expect that Moscow and Beijing will eventually negotiate compromises.
Probably the biggest break-point was when China offered a SU-27 aircraft in the international market.
Last year, Russian aircraft sales internationally topped $3 billion – second only to the US. But others too want a slice of the aviation pie.
Fake Su-27s are widely offered in the world arms market. “Sooner or later, Russian arms traders will face competition from the Chinese colleagues,” he told RT.
China was given the design plans for the Russian fighter jet in 1995, when it promised to buy 200 kits and assemble them domestically. After building 100 planes, the Chinese said the Russian plane did not meet specifications, only for a copycat version soon to appear – “Made in China” – without copyright.
The threat from China is real, and it will be difficult for the Russian aviation industry to maintain its lofty position, and soar further unless it manages to better protect its intellectual rights and also find new ways of co-operating with its eastern neighbor.
Although it made its maiden flight over 30 years ago, the Su-27 remains the bedrock of the Russian air force, and is highly popular abroad.
Some are calling for calm over the controversy. While the similarities between the two planes are clear, experts say the Chinese J11B does not have the latest Russian high-tech features and will be no match for it on the international market.
Russia went to the extent of arresting a Chinese national in Russia on charges of industrial espionage – a rare event in Russia.
Russia‘s security service has revealed that it arrested a suspected Chinese spy who posed as a translator while seeking sensitive information on an anti-aircraft system.
The man, identified as Tun Sheniyun, was arrested on 28 October last year, the federal security service (FSB) said in a statement cited by RIA-Novosti news agency.
It was unclear why the FSB disclosed the arrest on Wednesday, less than one week before the prime minister, Vladimir Putin, travels to China on an official visit.
The alleged spy was acting “under the guise of a translator of official delegations”, the statement said.
He had “attempted to obtain technological and maintenance documents on the S-300 anti-aircraft missile system from Russian citizens for money”, it added.
Last year, Russia delivered 15 S-300 systems to China, a popular Soviet-era arms export, as part of a deal signed several years earlier.
Ruslan Pukhov, director of the centre for analysis of strategies and technologies, a defence thinktank in Moscow, said: “They [the Chinese] are trying to copy this system illegally. They’ve already copied a whole series of our weapons.
“They’re trying to clone the S-300, to serve their interests and also to export. As I understand it, it’s not all working out. They probably wanted extra documentation to better deal with this task of reverse engineering.”
Earlier this year, Ukrainian authorities jailed a Russian man for six years, claiming he was stealing military secrets to further China’s aircraft carrier programme.
In the past two years, Russian customs officials have also accused two Chinese citizens of attempting to smuggle spare parts for Russian fighter jets across the border.
While China and Pakistan are pariahs in the international arms bazaar, India is a preferred customer. To India’s policy makers and handlers must go the credit for positioning India as a lead partner in the global arms bazaar.
Traditionally Russia has been a stable and safe partner for India. The US has usually avoided arms sales to India – fearing leakage of technology to Russia. However, for its latest F-35 stealth fighter, the US has decided to waive all its habitual hesitation. France, Italy, Israel, Sweden, Britain are all willing to sell any technology, product, service or components that India needs.
China is richer and Pakistan, more mercenary and desperate – yet …
It has taken seventy years, and LB Shastri’s slogan of Jai Jawan, Jai Kisan is on the verge of coming true. For most of the last fifty years, India has been criticized for its slow decision-making, its exhaustive processes, its complex negotiations.
When Pakistan joined CENTO and US armed Pakistan. When Nixon met Mao. When Israel defeated the Arab alliance in the 1973 war. When Reagan ‘partnered’ with Pakistan to defeat the Soviets in Afghanistan. After each of these events, commentators lamented about India’s ‘missed’ chances and predicted disaster for the last fifty years. Yet after each decade, India has emerged a step ahead.
Who would have thought, seventy years ago …