.

I have argued that Asia needs its own regional security grouping – an Asian NATO for want of a better term – that would serve as a bulwark for the rest of Asia. In fact, we need a multilateral security structure in Asia far more than we do in Europe. The locus of the world’s economic activity has shifted from Europe, and the USSR no longer threatens anyone. Admittedly, a NATO do-or-die alliance may be too premature for Asia, and we are not looking to provoke China. But the current situation does not inspire much confidence, either in our Asian allies or in China.

.

Lets look at the facts. In the past year, China has threatened Japan over disputed islands. It has issued stark warnings to the U.S. and Korea over sea exercises in the Yellow Sea (which it calls its “coastal waters”). It has told SouthEast Asia that it owns the entire South China Sea, and has threatened both Vietnam and the Philippines. It has even had an altercation with an Indian naval ship which was making a friendly call on Vietnam (and i am not even discussing China’s recent claim on an entire Himalayan border state). And of course, China continues to threaten Taiwan with war at the very mention of separation. All this is happening while China builds up its own military, particularly its maritime and cyber capabilities. Its not just its new aircraft carrier or stealth planes that worry me, but its anti-ship missiles that are clearly designed to deny the U.S. Navy access to Asia. Furthermore, it is eying bases across the Indian Ocean – not traditional military bases but stations nonetheless. Even distant Australia is now rearming. In the cyber realm, we have no idea the damage done to our national secrets by Chinese “students”.

.

China’s recent assertiveness has not gone unnoticed by an increasingly nervous Asia. Most countries in the region quietly are advocating for a stronger U.S. presence in Asia. We also belatedly recognize that this (as opposed to events in Afghanistan) is vital to our own interests, lest we be shut out of the center of the world’s manufacturing, trade and energy hub. Added to the concern about Chinese military intentions is the lack of trust engendered by its non-democratic system of government. I would argue that we are not an ideological struggle with China as we were with the USSR. We would have these same issues with China even if it were a democracy. However, a democratic country would be less opaque about its intentions. A democratic country would also not be as beholden to its nationalistic military, which the Chinese Communist party increasingly is, if only to keep its legitimacy.

.

The best way to keep the peace in Asia, and to ensure China’s peaceful rise, is a strong defense. It is something that would give the countries in Asia confidence that they will not be subjected to Chinese hegemony. It is something that would give us here in the United States confidence that we are not going to be shut out of Asia (China’s real aim). Most importantly, it would signal to the Chinese military that adventurism will not pay. Forming a regional security structure will cause shrieks of protest from Chinese nationalists. But I argue that it is in their own interests to keep the peace, and that this is the best way of doing so.

.

Advocating for a regional security bulwark to hedge against an assertive China, even one that does not carry the same guarantees ensured by NATO, is not Cold War thinking. Rather, it is a pragmatic approach to ensuring peace in a part of the world that is most vital to our interests.

.

Congress mandates the Pentagon to produce an annual report on the state of China’s military. China is offended that they are being judged by a foreign country – and that the U.S. has no right to judge them. China is wrong. All countries do net assessments of threats. In the U.S., its a more open process, given Congress’ own concern. At its core is a realization that China is a core challenger to the U.S. – a competition that could one day become military, especially over Taiwan. But it is more than that. China has been unusually secretive about its military, and prevents military to military contacts with the United States. In the lack of information, Congress is especially anxious to understand what is going on. By its own lack of transparency, China itself has added weight to the annual Pentagon report.

.

From what it appears, there are a couple of key take-aways from the report, which i will be going through in the coming days

.

1. The Chinese military budget is growing – China spends $160B in defense (vs $550B for us). Note that given China’s personnel costs are so much lower than ours, the “real” effective spending, is much higher. Add to the fact that defense budgets threaten to gut our spending while there’s is rising rapidly, parity in defense spending is a possibility in a decades time

.

2. China is closing the technological gap – in reality, the Chinese are very far behind us. Most of their best developments have been gleaned from the Russians or stolen technology from the U.S. – whether through cyberespionage, or by getting hands on our equipment (including the stealth helicopter used in the Raid on Abbotabad, and passed along by our ostensible ally, Pakistan)

.

3. China is growing its maritime profile – far in excess of anything required to mount an invasion of Taiwan. Of note is the launch of PLAN’s first aircraft carrier. In reality, the aircraft carrier is nothing but a test vehicle, and even when China does launch something more modern, they have no experience in carrier air combat. This will take decades to learn. Far more pressing is China’s land based anti-carrier missiles. These potentially threaten the US Navy’s entire approach of forward deployment in the Western Pacific and South China Sea. Its what is driving updates to the US AirSea Battle plan. More on this in future posts. Longer term, China wants carriers to project its power far from its shoreline. Most attention is being given to their intentions in the South China Sea. In fact, the Chinese have a clear intention of gaining mastery of the Indian Ocean, through which most of the world’s oil supply lines lie. Future U.S.-Chinese naval tensions are therefore as likely to be found in the Indian Ocean as much as the South China or Yellow Sea.

.

4. China is advancing in asymmetric technologies. China has become adept in using low cost technologies to neutralize enormously expensive US platforms. China’s carrier busting missiles are an example of this. There are others.  In the area of cyberwar, it is clear that China has mounted major espionage efforts against the United States, Europe and India. Not only are they looking for intellectual trade secrets, but they are trying to undermine our critical infrastructure and learn our military game plans. We are currently in the early stages of cyberwar – stay tuned. This is a problem that is only going to grow. The other area where China is using low cost technologies to hit us where it hurts is in space. Our entire military relies on space-based assets for command, communications, intelligence, surveillance and reconnaissance. Knocking out our GPS satellites could have a major impact on us.

The Pentagon is right to focus on this.

.

So far so good. The Pentagon paints a picture of a rising giant, developing a much larger military with an ability and intention to project power in the Western Pacific, South China Sea and Indian Ocean. It is also one that has invested in technologies to deny U.S. its traditional advantages. My concern is we may be missing another picture here. China is not projecting power for its own sake – they are doing so (understandably) to protect their natural resource supply chains. Hence the rise of their navy (and also its military links into resouce-rich Central Asia). But China now gets its resources from all parts of the world. Accordingly, it is only logical to assume that it ultimately plans to have a global military that would match our own. Perhaps the first place we will see this is in our own backyard of Latin America. Already, China is Brazil and Argentina’s #1 trading partner. China’s trade with the region will only grow as Brazil ramps up its oil production. Furthermore, food security will cause China to look further afield in Latin America for supplies. As it is, the Chinese have keen interests in Panama, and they have been known to be in discussions to build a canal across Mexico (to reduce reliance on the Panama Canal). They obviously have a friendly face in Venezuela, and are believed to have listening stations in Cuba. i do not want to be alarmist that there is a ‘Red Menace” threatening us from the South. But clearly, the trend lines are there.

.

The Pentagon report looks like it covers all the main areas where we face a threat. i will be going through each of these, and writing on them over the coming days. But the overall framework of our analysis of China’s military must no longer be regional in nature or looking at US-China rivalries in space or cybertechnology. We now need to have a global perspective – not as a repeat of the US-Soviet Cold War but as a modern-day competition for resources, influence, and ultimately values.

.

While the world’s finances go into free fall, the political situation is fast deteriorating as well. Violence of the worst kind continues to plague Libya and Syria. Continued attacks in Iraq, Pakistan and now Israel also punctuate the morning news. But more telling than these is the less destructive but equally worrying violence in London. There is no doubt in my mind that what happened in the British capital was criminality. But these things do not come out of nowhere. They are a result of the alienation and sense of hopelessness of a new generation that is about to enter the work world. I suspect that this alienation is widespread across Europe. There is a possibility (though not yet a probability) that this unrest will spread to the United States. Over the longer term, even when economic growth returns, if the benefits only accrue to a few, and a majority is left flipping burgers, the scene is still set for a social explosion.

.

For all the market and social reasons I outline above, I believe some of the brightest long term spots in the world economy may now be guns (ie the security industry) and gold. Gold is an easy proposition. The U.S. currency is most likely going to be debased, whichever way you look at it, and the Euro is not giving much room for comfort. Continued malaise in Japan and the lack of convertibility of the Renminbi suggests there are few other places to hide. Investors will look to gold as a safe haven (even though they will continue to look to the U.S. dollar for some time given the lack of alternatives). A more difficult proposition is guns. After all, cutting the deficit is going to hit the defense industry more than any other. However, this is a short term view. History has shown that it is at times of economic stress that you see domestic unrest and heightened geopolitical tensions. Well, the unrest is already here. As for geopolitical tension, Asia is entering into an arms race, that is spreading from China to Japan to Australia and India. It is only a matter of time till the U.S. doubles down in the region too. Over the medium term, after the current cuts, it is entirely possible that the defense sectors in the U.S. and globally are reenergized.

.

So what does this market meltdown and social unrest tell me? It may be time, at least psychologically speaking, to be thinking guns and gold.

.

Despite the cuts mentioned above, there is clearly a point whereby we seriously start cutting into the muscle of the military. There are those, on both the left and the right, who think that this is fine – that we are no longer at war. The reality is, however, quite different. The “War on Terror” may be over but the threat posed by terrorists is far from done. Add to this, other non-state actors ranging from drug cartels, to organized crime and professional cyberterrorists, and we still have serious asymmetric threats facing us. Far more profoundly, the rise of China poses a fundamental and direct threat to our interests. First, we face the very real possibility of being pushed out of Asia – the locus of trade, manufacturing and oil. We cannot remain a superpower and not be the preeminent power there. Secondly, for the first time since World War Two, we are being challenged in the Pacific Ocean itself, which directly abuts the Continental US. Given China’s rapid military build up, we cannot fail to notice the threats.

.

I suspect that when all is said and done, Congress will end up cutting real muscle out of the military. Simply put, it is easier to make cuts in a loyal service that will take it on the chin than to cut Medicare and Social Security. I believe this is short sighted, as it is only delaying the day when those two programs will have to be cut, as it is in fact those (and not defense) that will drive the budget out of all balance. But assuming that my hypothesis is correct, we need to start planning now on how a smaller military can fulfill its obligations to defend the country and to preserve our role as the world’s preeminent power. The clearest answer lies in developing a new global security strategy realigning our overseas posture and alliances with the threats at hand.

.

I have been arguing for some time that we transform our individual treaty alliances in Asia into a multilateral security architecture – an Asian NATO-lite – that can preserve the peace by balancing China. This does not need to be a provocative gesture. We are not recreating the NATO of the Cold War, although the threat is clearly there. As part of this, we must press our Asian allies into cost sharing. Simply put, they need to contribute to their own security. Many countries are already expanding their defense budgets in any event. This can be made far more effective by avoiding duplicative tasks. On the other side of the world, we need to reassess the current NATO. As it stands, it overcommits us to the defense of over a score countries – often in places where we have no strategic interests. Adding insult to injury, most of these countries can afford to defend themselves but have no incentive so long as NATO exists. If singular alliances in Asia can give way to one multilateral one, the exact opposite is possible in Europe.

.

Whatever you think of the above changes in US defense posture, one thing is clear. It needs updating both for the new security environment and also for the new budgetary environment. In fact, the bigger the cuts in our defense budget, the more urgent the need for a new global security strategy.