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The Korean Standoff, from Peter Myers (Collection)

*(1) South Korea insists: No military action without its approval; but US wants Regime Change*
*(2) Putin proposes Trans-Korean Railway, connectivity between Korean peninsula & Russian Far East**(3) North Korean economy now strong -“the poorest advanced economy in the world”**(4) US threatens China with sanctions if it does not uphold sanctions against N. Korea**(5) Pre-emptive strike against North Korea using Stealth missiles****(1) South Korea insists: No military action without its approval; but US wants Regime Change**forbidden questions about the Korea crisis*By FRANCESCO SISCI, Columnist SEPTEMBER 19, 2017Now is the time for a gallant peace gesture from Washington or for Seoul to quit the *war games – twice-yearly* events, dating back to 1976, in which US and South Korean military forces deploy thousands of troops to *simulate various scenarios for conflict with the North.*This summer’s games involved 17,500 US troops and 50,000 South Koreans. To North Korea the games simulate invasion. *War games with a specific offensive objective violate the UN Charter*, that is, international law.The current mutual oppositional defiance between Pyongyang and Washington has evoked alarmist reactions and feverish talk from all parties except China, which has sensibly proposed a *dual freeze*: The US stops its perennial war games; North Korea stops testing missiles and nuclear weapons.In China this is a moderate position between those sympathetic to North Korea and those who want Beijing to take a hard line as Washington insists. Former US defense secretary *William Perry, who once advocated pre-emptive strikes, agrees with a mutual freeze*. In an August 1 *editorial, The New York Times cited experts who endorse the freeze.* So why not?US pressure on Beijing to pressure Pyongyang without regard to Beijing’s views does not work. The Chinese might do all they can to end North Korea’s tests and move toward denuclearization, but only if Washington gets out of their way and commits to accept whatever Beijing can accomplish. Beijing will not serve as Washington’s surrogate or tolerate provocative second-guessing. And Washington has to forswear its *regime-change tactics, a*nother *violation of the UN Charter*.For a relevant if imperfect historical analogy, compare *Operation Mongoose – a secret program aimed at removing the Communists from power in Cuba* – under the US administrations of Dwight Eisenhower and John F Kennedy.The question remains: Why does Washington insist on continuing the war games? Is it about strategy, military budgets, promoting weapon sales, face? Is the purpose to maximize tensions and so push South Korea away from China and toward Japan?South Korea invests heavily in the former Manchuria, and its trade with China has reached new heights. Thus Beijing has as large a stake in Seoul’s security as in Pyongyang’s, certainly a larger stake than Washington, which many Koreans view as uninterested in South Korean security. Why does Seoul go along with the games?In its August 31 print edition, The Wall Street Journal reported that *“South Koreans feel sidelined in Pyongyang crisis”.* They see Washington dealing with Beijing, Tokyo and Moscow while bypassing Seoul and *taking lightly President Moon Jae-in’s insistence that his country’s government must approve military action.* Western media similarly tend to minimize or ignore Moon’s position while fanning the rhetorical flames. Is Washington pressuring Seoul (and the media)? Pyongyang’s willingness to negotiate with Washington is likewise played down.Furthermore, why assume Washington wants peace? President Moon has tried to set some limits on Washington’s aggressiveness. Like Japan, *South Korea is an occupied country*, and the new president may want to assert some national sovereignty, supposedly protected by international law. More generally, continuing the war games reinforces the wobbly “pivot”, the “presence” of US military power in the West Pacific area to compensate for the decline of US economic importance and moral authority – especially vis-à-vis China.Claiming it stands on higher ground, Washington says the proposed freeze-for-freeze (games for tests) implies equivalence with the inferior North Koreans and that the US could not possibly lower itself to create that impression. On the contrary, Washington’s own moral authority is diminished commensurately with the gross *disparity in the size and power of the antagonists*. In any such unequal contest, the more powerful party bears responsibility for making the first move toward settlement.*Tokyo*too, unloved in both Koreas, would do well to reflect sincerely on how to play a more peace-oriented role, as its own laws require, rather than *exploiting the situation for promoting its own militarism* and undermining Article 9 of its constitution, which renounces belligerency. Other nations would do well to bring Article 9 into their own constitutions.*(2) Putin proposes Trans-Korean Railway, connectivity between Korean peninsula & Russian Far East* Russia-ChinaPlan for North Korea: Stability, ConnectivityMoscow has been busy building agreements that would extend Eurasian connectivity eastward. The question is how to convince the DPRK to play alongBy Pepe EscobarGlobal Research, September 18, 2017Asia Times 13 September 2017The United Nations Security Council’s 15-0 vote to impose a new set of sanctions on North Korea somewhat disguises the critical role played by the Russia-China strategic partnership, the “RC” at the core of the BRICS group.The new sanctions are pretty harsh. They include a 30% reduction on crude and refined oil exports to the DPRK; a ban on exports of natural gas; a ban on all North Korean textile exports (which have brought in US$760 million on average over the past three years); and a worldwide ban on new work permits for DPRK citizens (there are over 90,000 currently working abroad.)But this is far from what US President Donald Trump’s administration was aiming at, according to the draft Security Council resolution leaked last week. That included an asset freeze and travel ban on Kim Jong-un and other designated DPRK officials, and covered additional “WMD-related items,” Iraqi sanctions-style. It also authorized UN member states to interdict and inspect North Korean vessels in international waters (which amounts to a declaration of war); and, last but not least, a total oil embargo.*“RC” made it clear it would veto the resolution under these terms.* Russian Foreign Minister Sergey Lavrov told the US’ diminishing Secretary of State Rex Tillerson Moscow would only accept language related to “political and diplomatic tools to seek peaceful ways of resolution.” On the oil embargo, President Vladimir Putin said,“*cutting off the oil supply to North Korea may harm people in hospitals* or other ordinary citizens.”“RC” priorities are clear: *“stability” in Pyongyang; no regime change*; no drastic alteration of the geopolitical chessboard; no massive refugee crisis.That does not preclude Beijing from applying pressure on Pyongyang. Branch offices of the Bank of China, China Construction Bank and Agricultural Bank of China in the northeastern border city of Yanji have banned DPRK citizens from opening new accounts. Current accounts are not frozen yet, but deposits and remittances have been suspended.To get to the heart of the matter, though, we need to examine what happened last week at the *Eastern Economic Forum in Vladivostok* – which happens to be only a little over 300 km away from the DPRK’s Punggye-ri missile test site.It’s all about the *Trans-Korean Railway*In sharp contrast to the Trump administration and the Beltway’s bellicose rhetoric, what “RC” proposes are essentially 5+1 talks (North Korea, China, Russia, Japan and South Korea, plus the US) on neutral territory, as confirmed by Russian diplomats. In Vladivostok, Putin went out of his way to defuse military hysteria and warn that stepping beyond sanctions would be an “invitation to the graveyard.” Instead, he proposed business deals.Largely unreported by Western corporate media, what happened in Vladivostok is really ground-breaking. *Moscow and Seoul agreed on a trilateral trade platform, crucially involving Pyongyang*, to ultimately invest in *connectivity between the whole Korean peninsula and the Russian Far East*.South Korean Prime Minister Moon Jae-in proposed to Moscow to build no less than “nine bridges” of cooperation:“Nine bridges mean the *bridges of gas, railways, the Northern Sea Route, shipbuilding*, the creation of working groups, agriculture and other types of cooperation.”Crucially, Moon added that the trilateral cooperation would aim at joint projects in the Russian Far East. He knows that“the development of that area will promote the prosperity of our two countries and will also help change North Korea and create the basis for the implementation of the trilateral agreements.”Adding to the entente, Japanese Foreign Minister Taro Kono and South Korean Foreign Minister Kang Kyung-wha both stressed “strategic cooperation” with “RC”.Geo-economics complements geo-politics. Moscow has also approached Tokyo with the idea of building a bridge between the nations. That would physically link Japan to Eurasia – and the vast trade and investment carousel offered by the New Silk Roads, aka, the Belt and Road Initiative (BRI) and the Eurasia Economic Union (EAEU). It would also complement the daring plan to link a Trans-Korean Railway to the Trans-Siberian one.Seoul wants a rail network that will physically connect it with the vast Eurasian land bridge, which makes perfect business sense for the fifth largest export economy in the world. Handicapped by North Korea’s isolation, South Korea is in effect cut off from Eurasia by land. The answer is the Trans-Korean Railway.Moscow is very much for it, with Putin notinghow “we could deliver Russian pipeline gas to Korea and integrate the power lines and railway systems of Russia, the Republic of Korea and North Korea. The implementation of these initiatives will be not only economically beneficial, but will also help build up trust and stability on the Korean Peninsula.”Moscow’s strategy, like Beijing’s, is connectivity: the only way to integrate Pyongyang is to keep it involved in economic cooperation via the Trans-Korean-Trans-Siberian connection, pipelines and the development of North Korean ports.The DPRK’s delegation in Vladivostok seemed to agree. But not yet. According to North Korea’s Minister for External Economic Affairs, Kim Yong Jae:“We are not opposed to the trilateral cooperation [with Russia and South Korea], but this is not an appropriate situation for this to be implemented.”That implies that for the DPRK the priority is the 5+1 negotiation table.Still, the crucial point is that both Seoul and Pyongyang went to Vladivostok, and talked to Moscow. Arguably the key question – the armistice that did not end the Korean War – has to be broached by Putin and the Koreans, without the Americans.While the sanctions game ebb and flows, the larger strategy of “RC” is clear – a drive aimed at Eurasian connectivity. The question is how to convince the DPRK to play along.The original source of this article is Asia Times*(3) North Korean economy now strong -“the poorest advanced economy in the world”* North Korea Outmaneuvered U.S.September 14, 2017Exclusive: Like U.S. presidents before him, Donald Trump blustered about North Korea, but the seemingly isolated nation has somehow survived and may now be coming out on top, as Daniel Lazare explains.By Daniel LazareDon’t look now, but North Korea has just won its latest diplomatic tussle with the United States. No matter how often Donald Trump promises to rain down “fire and fury” on the Democratic People’s Republic “the likes of which the world has never seen before,” it’s increasing clear that Kim Jong Un’s nuclear-deterrence policy is working and that there’s little the U.S. can do in response.This was evident the moment the U.N. Security Council voted on Monday to slap the DPRK with yet another round of economic sanctions, its ninth in 11 years. The Security Council resolution certainly sounded tough enough as it accused Kim of “destabilize[ing] the region” by exploding an underground thermonuclear device on Sept. 3 and posing “a clear threat to international peace and security.”But thanks to Russia and China, it ended up with so many loopholes as to be well-nigh meaningless. The resolution imposes trade restrictions, for example, but rejects a U.S. bid to allow outside powers to enforce them by stopping and inspecting North Korean ships on the high seas or by forcing down aircraft suspected of carrying contraband. Where the U.S. had pushed for a total energy embargo, it allows oil imports to continue at current levels. It permits North Korean workers in foreign countries to continue sending hard currency back home, a practice the United States had hoped to stop. And it rebuffs U.S. demands for a ban on the North Korean national airline, Air Koryo.Considering how adept China, Russia, and others have gotten at evading previous sanctions, it’s hard to believe they’ll have much trouble dealing with the latest round. As permanent Security Council members, Russia and China have veto power over enforcement, moreover, so it’s highly unlikely that they’ll allow it to do anything to stop them from carrying on precisely as they please.They’ll e*nforce sanctions when they feel like it and look the other way when they don’t*. Trump admitted as much on Tuesday when he told reporters: “We think it’s just another very small step, not a big deal. I don’t know if it has any impact, but certainly it was nice to get a fifteen-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen.”In other words, it’s a face-saving gesture with little real substance. As a candidate, Trump swore to make the Chinese do something about “this madman” in Pyongyang, telling the TV news show “Fox & Friends”: “They’re draining our country, and they’re toying with us with North Korea. China should do it.”Not So EasyBut now that he has to deal with reality, Trump is finding that getting his way is not so easy. In fact, he now has to deal with two realities, not only foot-dragging on the part of Russia and China but an unexpected resurgence on the part of North Korea.This last item is the game-changer that “regime change” advocates are afraid to face. For years, the U.S. told the world that North Korea was an economic basket case that was killing itself off thanks to its outdated socialist policies. As the neoliberals at Vox put it:“Pyongyang is one of the world’s poorest countries. Its GDP per capita is estimated at about $1,000, about 1/28th of South Korea’s. It faces chronic shortages of food and medical supplies, depending on Chinese aid to meet its citizens’ basic needs. There’s a real risk that the Kim regime collapses under the weight of its own mismanagement.”If the North was dangerous, it’s because its predicament was so extreme that it might do something rash out of sheer desperation. Rhetoric like this was not so easy to dismiss in the 1990s when North Korea was reeling under the impact of the post-Soviet collapse and its economy was declining by nearly half.But then a funny thing happened on the way to that inevitable demise. Not only didn’t it happen, but the*DPRK has since bounced back with remarkable vigor*. Pyongyang, for example, has seen a*building boom over the last 10 years that has rendered it “unrecognizable” *according to Henri Féron, a North Korea export at Columbia Law School.When a project consisting of 18 towers standing up to 48 stories tall opened up in the heart of the city in 2012, observers dismissed it as a one-time occurrence. But Kim has inaugurated a grand new apartment complex nearly every year since, not to mention an impressive new theater, a 37-acre water park, a new airport, and even an atom-shaped science center. *Streets are crowded with traffic while young people zip along on inline skates.***Says Rüdiger Frank, a German specialist: “Restaurants and shops are everywhere, people are better dressed, more self-confident than two decades ago, and obviously also *better fed*, at least in the capital. *Air conditioners* are mounted on the walls of many residential buildings and offices. *Everyone seems to have a mobile phone, and there are even tablet computers.* In the countryside, too, signs of improving living standards are visible, including*solar panels, TV antennas, cars* in front of farmer’s houses, shops, restaurants, and so forth.”Backfiring SanctionsTo the extent sanctions had any impact at all, they may actually have backfired by encouraging the DPRK to diversify its economy much as they did in Iran prior to the 2015 nuclear accord. Mitsuhiro Mimura, a Japanese expert who has visited the North 45 times since 1996, calls the *DPRK “the poorest advanced economy in the world,”* meaning that while output is low for the moment, technological knowhow is high.This allows the country to marshal its resources so as to *produce a wide range of capital goods such as “railroad locomotives* and carriages, *cargo vessels, turbines and generators* for power plants, [and] numerically controlled lathes.” On the military front, it turns out everything “from small arms to ballistic missiles and nuclear weapons, trucks, jeeps, destroyers, and diesel engines.”This is a productive little economy that the DPRK’s neighbors want to get a piece of. A recent U.N. report thus found that*nearby countries “wittingly and unwittingly” provide North Korean front companies with banking services* and *look the other way when local vessels fly the DPRK flag in order to evade import restrictions.*Andrea Berger, an expert at the Royal United Services Institute, a London think tank, described the restrictions as “in many respects a house without foundations,” adding that “not a single component of the U.N. sanctions regime against North Korea currently enjoys robust international implementation.”Commerce is so brisk, in fact, that Russia recently inaugurated weekly ferry service between Vladivostok and the North Korean port of Rajin, a hundred miles or so to the southwest.But if nobody wants sanctions, why do they bother at all? Why not stop pretending and allow the DPRK to trade as much as it wishes?The reason is that the current standoff is not without certain benefits. For Kim, nukes are not only a guarantee against U.S. invasion, but a means of driving a wedge between Washington and Seoul – a goal that Trump has made all the easier by repeatedly attacking the 2007 Korea-U.S. Free Trade Agreement and by reportedly telling Republican Sen. Lindsey Graham: “If there’s going to be a war to stop them, it will be over there. If thousands die, they’re going to die over there, they’re not going to die here.”If Korean lives really count for less in Trump’s view, then people on both sides of the 38th Parallel may have more in common than they previously believed and the North may be one step closer to its long-term goal of driving the U.S. off the peninsula. Meanwhile, Russia and China are willing to provide the DPRK with a measure of cover for two reasons: because neither wants a failed state, which is precisely what a U.S.-imposed oil embargo is designed to achieve, and because neither wants a South Korean takeover since it would mean U.S. troops right on their doorstep.China sent more than a million troops across the Yalu River in 1950 to prevent any such eventuality while Russia, which shares an 11-mile border with the DPRK, has enough problems with NATO forces massing on its western frontiers without having to worry about U.S.-South Korean troops doing the same in the east.Neither country is particularly happy with North Korean off-the-wall rhetoric about beating the U.S. “to death like a rabid dog” or nuking the Japanese archipelago “into the sea.” But they’re willing to put up with the rambunctious Kim if it means holding off an even more rambunctious Trump.Daniel Lazare is the author of several books including The Frozen Republic: How the Constitution Is Paralyzing Democracy (Harcourt Brace).*(4) US threatens China with sanctions if it does not uphold sanctions against N. Korea**Mnuchin Threatens More Sanctions on China Over North Korea*By Saleha Mohsinand Arit JohnSeptember 13, 2017, 2:18 AM GMT+10 September 13, 2017, 4:43 AM GMT+10Treasury secretary invokes potential ban from ‘dollar system’He urges obeying ‘historic’ new United Nations sanctionsTreasury Secretary Steven Mnuchin warned the *U.S. may impose additional sanctions on China -- potentially cutting off access to the U.S. financial system* -- if it doesn’t follow through on a fresh round of United Nations restrictions against North Korea.The UN Security Council added new sanctions against North Korea after President Kim Jong Un’s regime conducted its sixth and most powerful nuclear test. Mnuchin echoed the U.S. envoy to the UN, Nikki Haley, in calling the sanctions “historic” even though they didn’t include U.S. demands for a full oil embargo and a freeze on Kim’s assets. The new measures include limiting North Korea’s imports of petroleum products and banning textile exports.“If China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system -- and that’s quite meaningful,” Mnuchin said during an event at CNBC’s Delivering Alpha conference in New York on Tuesday.The Treasury Department under President Donald Trump has broadened its reach on North Korea by slapping sanctions against Chinese individuals and entities it has accused of helping Pyongyang’s development of nuclear weapons and ballistic missiles.“North Korea economic warfare works,” Mnuchin said. “We sent a message that anybody that wanted to trade with North Korea -- we would consider them not trading with us.”Trump appeared to downplay the significance of the UN sanctions on Tuesday.“We think it’s just another very small step,” Trump told reporters at the White House one day after the Security Council’s unanimous vote. “Not a big deal. Not big. I don’t know if it has any impact but certainly it was nice to get a 15-to-nothing vote. But those sanctions are nothing compared to what ultimately will have to happen.”Chinese BanksAt a hearing of the House Foreign Affairs Committee on Tuesday, Republican Chairman Ed Royce said the *U.S. should target major Chinese banks*, including Agricultural Bank of China Ltd. and China Merchants Bank Co., for aiding Kim’s regime.Russia also came in for criticism. Assistant Treasury Secretary Marshall Billingslea said in prepared remarks to the committee that North Korean bank representatives “operate in Russia in flagrant disregard of the very resolutions adopted by Russia at the UN.”While China and Russia supported the latest UN sanctions, officials made clear they were troubled by Haley’s comments in the Security Council that the U.S. would act alone if Kim’s regime didn’t stop testing missiles and bombs. They emphasized the world body’s resolution also emphasized the importance of resolving the crisis through negotiations.“The Chinese side will never allow conflict or war on the peninsula,” Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.China and Russia -- the biggest economic patrons of North Korea -- both share the view that North Korea won’t give up its nuclear weapons without security guarantees, and they don’t see the point in fomenting a crisis on their borders that will benefit American strategic goals. At the same time, they don’t want Kim provoking the U.S. into any action that could destabilize the region.“Sanctions of any kind are useless and ineffective,” Russian President Vladimir Putin told reporters earlier this month at a summit in Xiamen, China. “They’ll eat grass, but they won’t abandon their program unless they feel secure.”— With assistance by Kambiz Foroohar, Ting Shi, and David Tweed*(5) Pre-emptive strike against North Korea using Stealth missiles*This sort of attack is not likely to be initiated by South Korea, but it could be initiated by the US. This is probably what Mattis means whern he says it might be possible to attack North Korea without risking huge casualties in South Korea. That would require a rain of stealth missiles, which North Korea would not be able to detect - Peter M. Korean military releases video footage of advanced stealth missile test amid North threatsPosted about 2 hours agoSouth Korea has conducted its first live-fire drill for an advanced air-launched cruise missile that would strengthen its pre-emptive strike capability against North Korea in the event of crisis, according to Seoul's Defence Ministry.Key points:A *pre-emptive strike* is seen as the most realistic of Seoul's military optionsThe Taurus missile can reportedly avoid detection by radarsSouth Korea says it has detected radioactivity after North's nuke testThe missile, manufactured by Germany's Taurus Systems, has a maximum range of 500 kilometres and is equipped with *stealth characteristics that will allow it to avoid radar detection before hitting North Korean targets*.On Wednesday, the South Korean military said the Taurus missile — fired from an F-15 fighter jet — travelled through obstacles at low altitudes before directly hitting a specific target off the country's western coast.South Korea has been accelerating efforts to ramp up its military capabilities in face of a torrent of nuclear weapons tests by North Korea, which on September 3 conducted its sixth and most powerful nuclear test to date.Shortly after the nuke test, Seoul announced it had reached an agreement with Washington to remove the warhead weight limits on South Korean ballistic missiles, which under a bilateral guideline could be built for a maximum range of 800 kilometres.A pre-emptive strike against Pyongyang's leadership would be difficult to undertake, but it is widely seen as the most realistic of the limited military options Seoul has to deny a nuclear attack from its rival. ...*(6) Western tech companies have sold family jewels to China; now China on path to dominate* contempt for China turns to panicEconomic boom continues with electronics industry domination and infrastructure growth through trillion-dollar Belt and Road InitiativeBy SPENGLER SEPTEMBER 18, 2017 11:53 AM (UTC+8)Not since the British garrison at Singapore surrendered to Gen. Tomoyuki Yamashita in 1942 has Western opinion of an Asian power changed so fast. When China’s 2015 stock market bubble popped, prevailing Western opinion held that China’s economic boom would flame out in a debt crisis comparable to America’s subprime disaster of 2008 or the near collapse of Europe’s southern tier in 2013.Now that China’s tradeable stock market has risen by 43% during 2017 in US dollar terms (with the MSCI-based ETF as a benchmark), Western opinion is melting up. Bridgewater, the world’s largest hedge fund, is raising money for a China investment vehicle. Bank of America now predicts Asian stocks will double in the present bull run. “Hedge Funds Used to Love Shorting China. Now, Not So Much,” declared a Bloomberg headline Sept. 12.The same applies to Western evaluation of China’s standing as a world power. *Graham Allison’s The Thucydides Trap*, a plea not to oppose China’s strategic challenge to the United States, now sits on the desk of every senior staffer at the National Security Council courtesy of President Trump’s national security adviser, Gen. H.R. McMasters.Allison puts America in the position of the “established power,” like Sparta on the eve of the Peloponnesian war of 431-404 B.C.E., and China in the position of the “emerging power,” like Athens, arguing that the rise of China is inevitable. Allison’s book has many flaws, as I try to show in the forthcoming issue of Claremont Review of Books, but it depicts a vibrant, technologically-driven Chinese economy.It will shock Americans who have been told for years that China merely copies Western technology by stealing trade secrets, and for that reason alone Prof. Allison’s book fairly might be called the most influential book of the year.Allison warns:In the three and a half decades since Ronald Reagan became president, by the best measurement of economic performance, China has soared from 10 percent the size of the US to 60 percent in 2007, 100 percent in 2014, and 115 percent today. If the current trend continues, China’s economy will be a full 50 percent larger than that of the US by 2023. By 2040 it could be nearly three times as large. That would mean a China with triple America’s resources to use in influencing outcomes in international relations. Such gross economic, political, and military advantages would create a globe beyond anything American policymakers can now imagine.A sense of resignation, if not outright defeatism, pervades the Trump White House where China is concerned. Washington is dependent on Beijing in the matter of North Korea’s nuclear ambitions; it has no military option as matters stand, and no appetite to undertake the formidable investments in ballistic missile defense that would be required to contain the North Korean threat.In August 2015, the Establishment consensus thought it saw the headlamp of the oncoming express, when the glimmer really was light at the end of the tunnel. I examined the forces at work in an Aug. 2 article for this publication. As the RMB appreciated against the dollar during 2013-2015, Chinese companies borrowed massively in dollars, expecting that their dollar-denominated debt would continue to lose value against their RMB earnings. The People’s Bank of China had given them a one-way bet.But as the US dollar rose sharply against all other currencies during 2014 and 2015, the PBOC had to allow Chinese interest rates to rise in order to maintain the RMB’s high exchange rate with the dollar.This brought real interest rates to a peak of 6% in 2015, the highest in the world, and high real interest rates suppressed industrial prices and squeezed corporate profits, forcing state-owned enterprises to borrow heavily to pay debt service.In August 2015 the PBOC let the RMB drop against the dollar, a signal to China’s borrowers to pay back dollar debts and replace them with local-currency loans. They sold roughly $1 trillion of local currency to buy dollars with which to pay back their dollar loans, and the PBOC sold them dollars for local currency.China’s official reserves fell by $1 trillion and corporate dollar debt fell by $1 trillion, so that China’s net creditor position was little changed, as Bank for International Settlements economists pointed out in 2016 (as did this writer). There was little or no net capital outflow, but the Western investment community and economics profession mistook this balance-sheet adjustment for capital flight.By early 2017, producer prices were rising, real interest rates were falling and Chinese reserves stabilized. Corporate profits surged, corporate leverage declined and stock prices boomed.Investor opinion about the Chinese stock market has only begun to change, but corporate America has been bullish on China all along. Chinese companies’ share of global electronics production, meanwhile, rose from 30% in 2012 to nearly 60% in 2016, and this share will rise to 87% by the end of the present year. China is the world’s largest market for electronic components and no American company can afford not to have a major presence there.President’s Trump veto of a Chinese-backed purchase of Lattice Semiconductor last week drew headlines, but shouldn’t have. Lattice is a second-tier firm whose production facilities have already moved to Asia. But *America’s top of the line tech companies have been selling their family jewels to China for years, as a condition of entry into the Chinese market.*As the New York Times reported Aug. 4, 2017:To gain access to the Chinese market, American companies are being forced to transfer technology, create joint ventures, lower prices and aid homegrown players. Those efforts form the backbone of President Xi Jinping’s ambitious plan to ensure that China’s companies, military and government dominate core areas of technology like artificial intelligence and semiconductors…The worry is that by teaming up with China, American companies could be sowing the seeds of their own destruction, as well as handing over critical technology that the United States relies on for its military, space and defense programs.Advanced Micro Devices and Hewlett Packard Enterprise are working with Chinese companies to develop server chips, creating rivals to their own product. Intel is working with the Chinese to build high-end mobile chips, in competition with Qualcomm. IBM has agreed to transfer valuable technology that could enable China to break into the lucrative mainframe banking business.America produced every important invention in the digital age, from integrated circuits to semiconductor lasers, solar cells, flat panel displays, sensors and light-emitting diodes. Except for integrate circuits, Asia now produces virtually all the world’s output of these building-blocks of the electronics industry, and China has a crash program underway to become the world’s major producer of semiconductors.To my knowledge, the only senior adviser to President Trump who proposed to stop this practice was Steve Bannon, who left the White House in August. Interfering with US companies’ tech transfer to China would hurt revenues in the short- and medium-term. US companies are making a good living on the rise of China, and CEO’s worry about their stock price during the next five years, not about America’s competitive position in 10 years.Western analysts in general dismissed China’s trillion-dollar Belt and Road Initiative (BRI). During the past year, though, new rail lines have lined China to Iran, Turkey and from there to Western Europe, drastically reducing the time and cost of shipping across the Eurasian continent. Two rail links to Iran are now in operation.On September 6, the *first train to Teheran departed from Yinchuan, capital of northwest China*’s Ningxia Hui Autonomous Region, with a 15-day journey time to Iran’s capital, half as long as sea transport. The Baku-Tbilisi-Kars railway linking China with Turkey and the South Caucasus begins operations in October. China already is Turkey’s largest source of imports.As a result, once-neglected areas of Western China have become the most dynamic zones in the China’s economy. According to a recent study by the Milken Institute, the f*astest-growing city in China is Chengdu*, a metropolis of 12.3 million people in Sichuan province. Few Westerners can find Chengdu on a map, but it exemplifies the initial success of BRI.*Rail links bind Western Asia to Beijing*. Chinese companies will be able to pack components into containers for assembly by low-cost Turkish labor, and further export to Europe and Africa. But the visible face of BRI may be less important than the digital revolution coming from China. China is the first emerging economy to shift from cash to digital payments, as mobile broadband reaches the outlying parts of the Chinese economy.Companies like Alibaba and Tencent draw rural areas into a global economic marketplace. Chinese who once tilled subsistence plots or manned market stalls are turning into entrepreneurs with access to capital markets through such platforms as Jack Ma’s Ant Financial, and global sales through Alibaba.Turkey plans to become a cashless society by 2023, using the Chinese example and Chinese technology. China now makes 90% of the world’s smartphones. Its low-cost handset producers stand to dominate emerging markets. Google has just established a joint venture with China’s handset manufacturer Xiaomi to market mid-range, high-performance smartphones in India.China is transforming the economics on its periphery. This has obvious and deep strategic implications. Turkey now looks East to China rather than West to the European Community for its economic future. Iran, long dependent on Chinese trade to circumvent the Western embargo, is increasingly dependent on Chinese investment for oil and gas extraction.American influence in Western Asia is eroding quickly. *Turkey is now a NATO member in name only; it has bought Russia’s S-400 air defense system* over NATO protests, and it has *allied with Iran to suppress Kurdish forces* in Syria whose success threatens to strengthen Kurdish independence movements in Iran as well as Turkey.Suddenly, from the South China Sea to the Bosporus, the United States cannot move without brushing up against Chinese influence, if not outright Chinese power. It’s not quite the same as Yamashita’s march across the Malaysian jungle. But if anything, the fecklessness, complacency and incompetence of America’s leaders exceeds the fabled stupidity of the British at Singapore.-- Peter Myerswebsite: