Smaller Companies' Troubles Challenge China's Economic Policy

There are reports that without special government support, 40 percent of Wenzhou’s small- to medium-sized businesses could face at least a partial halt of operations, with bankruptcy for some. Also, Chinese media report that profits for 35 export-oriented businesses of this size have fallen by 30 percent. With Wenzhou seen as an economic model for other cities, this may have important ramifications. Growing financial troubles among small- and medium-sized businesses pose an immediate challenge to China’s tightening economic policy.

Analysis

Reports of failing small-to medium-sized enterprises (SME) have trickled out of China in recent months. An official from the association for those enterprises in Wenzhou, Zhejiang province, said that if the central government’s economic tightening policy does not change, or if the government does not give special support for struggling businesses, then 40 percent of the SMEs in the area may at least partially halt operations. Also, some may suffer bankruptcy soon, the association said. This statement comes after reports of three high-profile bankruptcies of SMEs in Wenzhou in April and claims in the Chinese media that profits for 35 export-oriented small and medium-sized businesses in Wenzhou have fallen by 30 percent. Other reports suggest a high number of businesses are on the verge of failure elsewhere in the manufacturing hubs of the Yangtze and Pearl river deltas.

Growing financial troubles among small and medium-sized businesses pose an immediate challenge to China’s economic tightening policy, and reveal a fundamental challenge to its economic model.

The Challenges for Smaller Companies

Reports of bankruptcies suggest that in the current economic climate, Chinese SMEs face greater challenges to their survival than was hitherto acknowledged. In the first two months of 2011, the Chinese Ministry of Industry and Information Technology recorded a slight uptick in bankruptcies, reporting that 15.8 percent of the country’s SMEs were facing bankruptcy, up by 0.3 percent since 2010, and that the financial losses involved had grown by 22.3 percent. The ministry ordered local governments to carry out financial surveys on the health of small and medium-sized businesses under their jurisdiction.

However, as is often the case, there are mixed indicators. The three SMEs that went bankrupt in Wenzhou are facing allegations of corruption and mismanagement in local courts, suggesting that their situation may not be indicative of broader economic problems affecting enterprises of their size. Of course, corruption and mismanagement are widespread, so the specific allegations against these companies do not rule out the possibility of negative conditions affecting numerous businesses. Local statistics say the number of businesses withdrawing from the market has actually fallen this year, but local statistics are geared toward showing positive economic news.

This trend is potentially of great importance because the bankruptcies are being attributed to the central government’s ongoing drive to tighten controls on the economy — especially on bank lending — in order to wind down the high levels of lending during the global economic crisis, reduce credit risks, and moderate the economy’s growth rate to prevent overheating. The tightening policy has moved at a very gradual pace, with the moderate reduction in bank lending and hikes to banks’ required reserves not translating to reduced credit expansion overall. However, the restriction of financial channels on the margins has begun to bite, especially for those who do not have the right political connections to ensure access to credit. SMEs fall under the latter category.

Small and medium-sized businesses have more trouble getting credit than the government’s favored state-owned enterprises (SOEs). While SOEs have benefited most from government policies since the global crisis, SMEs have borne the brunt of the post-crisis credit restrictions. While SME lending has surged, according to official statistics, the truth is that local governments can classify small and medium-sized businesses however they choose in order to make their statistics meet central government mandates that credit be extended to this sector, while not actually doing a better job of making credit available throughout the SME spectrum. Larger SMEs are more likely to get credit than the numerous smaller ones, which banks see as posing greater risks of default without the redeeming good connections or the extensive collateral that SOEs often have.

The problem of SMEs getting access to credit is an old one. Sometimes, powerful small- and medium-sized businesses trumped up complaints to get more favorable policies, but for others, it is a genuine problem. In the current context of government credit tightening, the problem appears to be getting exacerbated. The alternative, going to the underground lending sector, forces higher financing costs on SMEs.

Moreover, greater difficulty accessing credit comes at a time of other economic challenges. Businesses are facing demands for higher wages. As inflation pushes up prices for food, rent and some consumer goods, workers cannot keep pace. Across the country’s urban landscape, wages are estimated to have risen by more than 20 percent since 2010. This phenomenon adds great expense to businesses that already operate on thin profit margins. According to the Global Times, export companies’ average profit margin fell as low as 1.4 percent in the first two months of 2011.

Raw materials prices also pose a problem. Though the government attempts to limit domestic prices on commodities, international commodity prices have spiked, leading to price rises at home for goods needed as inputs for manufacturers. The gradual appreciation of the yuan against the U.S. dollar may also have added to concern among exporters, theoretically making Chinese products less attractive, though its pace has been gradual (barely more than 5 percent against the U.S. dollar in one year). Additionally, a stronger yuan can offset high prices of imported materials.

A massive challenge comes in the form of weak external demand. Most SMEs are built to export goods to customers abroad. The collapse in global trade in 2008-2009 did great damage to the SME sector, which did not receive anywhere near the amount of government support or stimulus that larger, more politically powerful SOEs did. Though trade recovered rapidly and exports boomed by around 30 percent in 2010, the anticipated slowdown in export growth in 2011 is taking its toll — exports are growing around 20 percent in May, down from 26.5 percent in the first quarter and plenty of downside risks are arising from China’s domestic economy, Europe’s debt troubles, and persistent problems with the American recovery. Many small SMEs are not accepting production orders in the fear they will incur greater losses; this behavior contrasts with the 2008 slowdown when they were desperately seeking new orders.

A Significant Part of the Economy

The threat of failing SMEs cannot be taken lightly. SMEs account for about 80 percent of China’s manufacturing employment. Because the supply chain is extensively connected, one failure can affect a number of other enterprises negatively, potentially leading to a wave of layoffs and unemployment. STRATFOR sources say that if Wenzhou companies are suffering, then others elsewhere certainly are — Wenzhou has a history of being an economic model for other cities and a leading indicator for new trends. Other STRATFOR sources say the majority of private small- and medium-sized businesses are technically bankrupt and survive through whatever government support they can get, and often, tax evasion.

The question, then, is how will the government respond? During the global financial crisis, the government stepped in to prevent the sector from collapsing. Beijing increased tax rebates for exporters and other subsidies, and presumably, the central government will do so in 2011 if bankruptcies become a broader problem. The China Banking Regulatory Commission announced in May that it has officially approved 75 percent of credit guarantees to companies that provide support for small- and medium-sized operations seeking loans. The commission hopes that by better regulating these companies, it can improve the financial situation for SMEs. However, more urgent and direct means of government support will be likely if bankruptcies grow rapidly.

This urgency raises a serious policy dilemma. The government’s current tightening policy may have to be abandoned if growth slows and joblessness looms. Unfortunately, doing so will encourage further spikes in inflation, which could result in the same outcome. The central government does not look kindly on private SMEs because they exist outside of its control. Beijing hopes to consolidate the sector ultimately, allowing restructuring to wipe away the inefficient or outdated enterprises and encouraging low-end manufacturing to move inland, while coastal operations are upgraded.

But progress is moving slowly. Consolidation faces resistance, as has happened in the steel sector. And SMEs on the coast do not have the funds to upgrade their production, which means that the move to boost production in the interior will simply add to overcapacity in low-end industry, and increase competitive pressure on all SMEs.

For China, an attempt to let SMEs go bankrupt and allow restructuring to run its course raises too great a risk of sudden, massive unemployment, and would add to social unrest among workers, particularly migrant workers, in an already precarious social and economic environment. Authorities are unlikely to allow deep retrenchment in the sector at present, though they will continue to seek to restructure the sector in the long run. Fortunately for China, while foreign demand is weak, it has not collapsed and exports continue to grow, albeit at a slower pace.

Yet, the fact that problems are emerging, despite exports holding up, points to flaws in the internal structure. China’s likely deferral of structural reform points to its larger economic problem. The export-driven economic model is reaching a peak as foreign demand weakens and export growth slows. This decline will strain the weak portions of the export sector. State-driven investment cannot support the economy forever, and it heavily favors the state sector, further squeezing the private sector. Household consumption is not picking up the slack, and any attempt to boost people’s incomes or reduce their burdens in a serious way will put greater financial stress on the industrial and corporate sector or government finances. The worst is yet to come for businesses, as workers’ demands for higher wages are set to continue, especially as the workforce peaks (expected to happen in 2013). This trend gives workers more bargaining power, placing more cost pressure on companies with thinning revenue streams. Thus, while it is not yet clear how extensive the latest round of bankruptcies will be — and while government support is fully expected — these signs of failing businesses point to grave challenges ahead.

STRATFOR

Firebrand General Liu Yuan

If there is one thing that China needs to avoid in the coming years then it is the militarization of its upper echelons of power. Just like Imperial Japan of the 1930s a stronger, more assertive military often masquerades as the panacea for the many social problems that arise after intense modernization, but in fact they are the harbinger of serious, future troubles. Who can tell which way the 2012 presidential handover will swing? However, there are credible signs coming out of China that a harder, military faction is in ascendancy. No one epitomizes this ‘tough’ military stance more than my favourite General, Liu Yuan. Below is an article written by Gordon Chang on Liu’s latest comments.

“Gen. Liu Yuan, a fast-rising star in Beijing political circles, this month called on China to return to its Maoist roots. A conference in the Chinese capital highlighted his essay glorifying war, sympathizing with terrorists flying planes into buildings, and criticizing China’s top leaders for betraying the country’s revolutionary heritage. The rant by the son of Liu Shaoqi, once Mao Zedong’s anointed successor, highlights the dangerous belligerence of today’s officers and their growing independence from Beijing’s civilian authorities. These senior military figures are also beginning to pose a threat to global peace.

Liu, 60, has essentially challenged the Communist Party’s control of the military. First, he called on China to rediscover its “military culture” and for the Chinese people to give in to their aggressive instincts. His diatribe, in a chilling passage, tells us that “man cannot survive without war.”

Second, he criticized the country’s last three leaders, Deng Xiaoping, Jiang Zemin and Hu Jintao, the current president and party general secretary. “The Party has been repeatedly betrayed by general secretaries, both in and outside the country, recently and in the past,” Liu writes in perhaps the most inflammatory passage in his widely circulated essay. The essay itself first appeared late last year as the preface to “Changing Our View of Culture and History,” a book-length collection of political tracts by leftist Zhang Musheng, the son of another Chinese official.

Liu’s thoughts come on the heels of Gen. Chen Bingde’s visit this month to Washington, where the chief of general staff sought to calm tensions and portray China as no threat to the United States. Although American officials would prefer to listen to Chen’s soothing words, the United States has to take heed of Liu, who is more representative of thinking in the upper ranks of the People’s Liberation Army.

Liu is one of the most powerful of the so-called “princelings,” children of former and current party leaders. This year he was named political commissar of the PLA’s General Logistics Department after becoming a full general in 2009. He is soon expected to be fast-tracked to a seat on the Central Military Commission, the body that governs the military.

Liu also is believed to be close to another princeling, Xi Jinping. Xi, expected to succeed Hu Jintao as China’s supreme leader next year, has also advocated a return to Maoism. A third princeling, the charismatic Bo Xilai, became a Communist celebrity in recent months for leading a “Red Culture” campaign in Chongqing, where he is party secretary.

Maoism is on the rise in China. China-watchers attribute its resurgence to the ongoing political transition, in which the so-called Fourth Generation leaders are supposed to give way to the Fifth. As Bo Zhiyue of the National University of Singapore told the Sydney Morning Herald, “there is also jockeying for power among princelings in the name of the legacies of their fathers.” So the powerful offspring are trying to diminish reformers and their legacies as a means of getting ahead during the historic political transition.

Yet this explanation does not catch the full backward drift of the Chinese political system. After all, Hu Jintao, the target of the princelings, has himself been in the forefront of a Maoist revival in the last half-decade. Unfortunately, Chinese leaders are trying to respond to the widespread mood of discontent in Chinese society with a renewed emphasis on ideological indoctrination.

Most people in society, especially the young, aren’t buying Hu’s Maoist campaign. And neither are restive military officers like the outspoken Liu, who see this moment as the time to consolidate power. Now they feel strong enough to publicly take on civilians, who are viewed as weak.

And in a sense, civilian party leaders are vulnerable. First, Chinese generals and admirals are starting to look like power brokers, as Xi Jinping and other Fifth Generation civilian leaders involve themselves in factional struggles and seek PLA support for their ambitions. Second, the clout of central Communist Party officials is declining as authority diffuses throughout the country and as they lose legitimacy for various reasons. Third, civilian leaders are relying on the military to keep order — and to keep themselves in power in the face of protests across the country. And finally, the military has remained relatively cohesive while other power blocs in the Communist Party have frayed.

The result of these four trends is the partial remilitarization of politics and policy as the top brass is filling the resulting void in power. In China there now exists the same dynamic that shaped Japan in the 1930s. Officers are thinking more about what they can do, not what they should.

Washington for the longest time has tried to downplay the rise of hostile elements in the Chinese military. That is a mistake. Before Liu became a famous essay writer, he made his mark by making incendiary comments. In 2004, for instance, he called the United States a “whore.” Senior Chinese officers are now disrespecting not only their own civilian leaders but American ones as well. China’s generals are on a bender — and just about everyone else needs to watch out.

China's economy: Ponzi scheme?

STRAFOR founder, George Friedmen, is positing that the Chinese economy is now acting like one giant Ponzi scheme, with the CCP at the top and the only thing holding it up is continual, unsustainable growth.

“China's economy (according to China) needs 8% annual growth, to keep the roughly 16 million new people entering the work force from rising in jobless protest—and to keep up with climbing wages and to sustain a growing retired population. A combination of exports, loose lending practices, super low margins, and government spending help keep up the growth. Sound healthy to you?”

As there is nothing on the planet that can sustain growth indefinitely then it is fair to surmise that this same law of the universe will also bind the Chinese economy and it will be eventually subject to a collapse. No matter how many economists predict that it will be the second-tier cities in China that will sustain the needed growth, I’m going to have to go with Friedmen on this one. Any description of anything that coins the term “miracle” so liberally should also be taken with extreme caution: That’s another law of the universe.

The scary thing is not a collapse, the Chinese economy should be mature enough to go through an inevitable decline, like any modern economy. What is scary is that in a ponzi scheme, the people at the top usually clear-out with everyone’s money before it all implodes. Unfortunately for China there are a small group of elites controlling vast sums of wealth in off-shore bank accounts, just like in a ponzi set up.

Is it just me?

Well, now it seems it wasn’t….

On May 22nd I wrote on my Facebook status,

“Is it just me... or is China's Global Times website swaying, ever so slightly, from hard to soft...? It's almost imperceptible”.

What I was referring to was a) The very mellowing tone that Global Times seemed to be taking in its editorials, calling for moderation and tolerance and b) a slow drying up of editorials on anything remotely contentious, despite their being heaps of great news to feast upon.

With all the recent talk of the fractious undercurrents pulling the CCP from left to right I thought maybe I was imagining things. Imagining that the journalists were choosing to keep themselves below the radar until they could determine which direction The Party would choose.

However, it seems that I’m not alone in my musings.

On the 27th May, China Media Project also seems to be scratching their heads at the abnormal behaviour and dulcet tones of the China Daily.

One can only surmise that there are some powerful forces at work behind the scenes in China pulling The Party hither and thither and the media is doing the smart thing and taking cover in mediocrity.

Read the CMP article here

What’s up with the People’s Daily?

China's Tepid Economic Tightening

March data shows the Chinese economy growing rapidly, along with inflation. Lending for the month is up, and the share of alternative forms of financing has continued to grow after a swift rise in 2010. The data shows that whatever success authorities have had in tightening credit, banks and companies keep finding ways to circumvent controls. Contrary to official pronouncements, the recent data indicates there is little appetite for aggressively tackling inflation expectations in China.

Analysis

New economic statistics from China for the month of March show that the government’s tightening policy remains half-hearted. The economy grew at a 9.7 percent clip in the first quarter, though that number is down from 10.3 percent annual rate in 2010. Meanwhile, inflation hit 5.4 percent, the highest since July 2008. High inflation was expected, and the decision by the People’s Bank earlier this month to raise interest rates for a fourth time signaled its awareness of the rising pressures.

But interest rates do not determine credit conditions in China. Most important is the influx of credit, which shows no sign of significant slowing. True, new loans issued in the first quarter totaled 2.2 trillion yuan ($336 billion), down by about 14 percent from the same period last year, revealing a greater degree of control. But March lending rose to 679.4 billion yuan ($104 billion), considerably higher than 506.7 billion yuan in March 2010. This does not support claims by central authorities of more determined tightening.

Crucially, the share of alternative forms of financing (published now for the first time as part of “total social financing” or “national financing”) has continued to grow, after a rapid rise in 2010. This shows that despite any success authorities have had in tightening credit, banks and companies are finding ways to circumvent controls. Bank loans now make up only about half of total financing, and the government has much more difficulty controlling the off-balance sheet and underground lending. The national financing total was 4.19 trillion yuan ($641 billion), showing the massive proportions of the ongoing credit binge. If maintained at the same pace throughout 2011, the total would surpass 16 trillion yuan ($2.5 trillion), greater than the 14.27 trillion ($2.18 trillion) tallied in 2010 (though credit issued in the first quarter tends to be on the high side).

(Click here to enlarge image)

The March data shows that, contrary to official pronouncements, there remains little appetite for aggressively tackling inflation expectations. The central government is ineffective in constraining prices and the monetary and credit forces that contribute to price growth, in part because of resistance from banks and corporations. The government is also wary of excessive tightening amid growing risks to growth. These include high commodity prices, the Japanese slowdown and global unrest.

The central government is still bickering with local governments that refuse to lower their real estate price-growth targets and has so far only threatened vague punishments for those that do not comply. Residential prices rose 6.6 percent on the official measure, while investment in real estate rose 34 percent in March year-on-year. This shows that attempts to curb these rises are meeting with little success, and has fueled fears of highly risky asset bubbles.

The National Development and Reform Commission continues to deny companies the right to raise prices, excepting necessary hikes on fuel and power that it seeks to delay and minimize. Direct price controls on food and consumer goods remain in place and will likely tighten. On April 14, 24 industrial associations announced, under pressure from Beijing, that they would not attempt to raise prices on key consumer goods. Exceptions will occur: the commission approved an electricity price increase in Shanxi and 10 other provinces because power companies were operating at a loss amid high coal prices. Corporations, especially energy companies and utilities, are demanding subsidies to offset the losses caused by purchasing inputs at international prices, then selling at domestically capped levels. This bickering will worsen as Beijing strives to shield the public from higher prices while companies resort to alternative or illegal ways to benefit themselves.

With growth surging, inflation remains the chief risk. The government will continue its marginal attempts to tighten policy in order to avoid losing control of the situation, while relying on price controls to alleviate the hardest hit areas. Economic conditions are pushing social dissatisfaction to new levels. Food inflation remained stubbornly high, at 11.7 percent, despite the government’s heavy hand in controlling grain and vegetable prices since late 2010. That 11.7 percent takes into account the statistical bureau’s attempt to downplay food prices by reducing their weight in the Consumer Price Index by 2.21 percent earlier this year. In any case, most Chinese people feel official statistics significantly understate the rise in food prices.

Still, there are sporadic indications of the government’s anti-inflationary measures achieving a degree of success. Inflation did fall slightly from the previous month. These measures pose a risk to growth. Smaller companies can have trouble obtaining enough financing to meet rising costs or, lacking political influence, cannot offset their losses with subsidies. Given the potential for social unrest, the government could be forced to take more drastic anti-inflationary measures. However, with extensive fears about growth and collapsing asset bubbles, Beijing seems prepared to maintain the high-growth status quo and use harsh security measures to suppress any unrest.

www.stratfor.com

The Arrest of China's Ai Weiwei

Chinese artist Ai Weiwei was detained April 3 at the Beijing airport. He is among numerous lawyers and activists who have been detained since the Jasmine rallies began early February. The most important issue surrounding Ai’s detainment is not about the artist himself, who has received mixed responses within China, but the timing.

The timing of the arrest of Ai Weiwei, who has pushed a very mutable, non-transparent redline on numerous occasions, is very curious. It illustrates a change in government behavior and tolerance, not merely reflected by anything Ai said or did. Moreover, Ai’s crimes have not been formally announced; there’s been talk of him being charged on economic crimes, but there’s also been talk of subversion based on his art and political activities that openly disparage the Communist Party of China (CPC). In particular, a picture of him with a grass-mud horse, which, said in Chinese in different tones, is a harsh expletive aimed at the CPC.

Ironically, Ai’s arrest attracts more, not less, attention to the social uprisings the Chinese government has been aggressively trying to contain. Ultimately, when domestic security is threatened, the government’s priority is not on managing public perception — and especially not on managing international perception.

But why are they doing this now, when figures like Ai have pushed the boundaries on numerous occasions? There are three factors that have contributed to the growing sensitivities. The first is the fear generated by the uprisings in the Middle East. The second is rising social concerns, primarily centered on inflation. The third is the upcoming 2012 transition in China. Chinese President Hu Jintao does not want large-scale protests to develop and mar his legacy. The biggest question is how long they will be able to maintain this level of social control.

Finally, these arrests — Ai’s in particular — underline China’s growing scrutiny. Beijing believes these protests are foreign-generated, and there are many indications of these protests being originated outside of China, where many of Ai’s supporters are located. The lack of legal protocol or transparency highlighted in these arrests underlines the difficulty of operating in China.

www.stratfor.com

Why the Shi Lang (Varyag) will never see action

Chinese media is alight with the coming unveiling of China’s first aircraft carrier, Shi Lang (Varyag) and although it may send shivers of discontent through its regional adversaries one has to state, there’s no reason why China shouldn’t have a carrier.

After all, the US, UK, France, Russia, Japan, India, Brazil, Argentina, Canada, Italy, Spain, Australia, Netherlands and Thailand all have had one or more at sometime in history, so why not China now? The simple answer is that there’s no reason why China shouldn’t have one, it has maritime interests and is a burgeoning power and deserves to have an offshore navy.

However, like most things in the Chinese military these days it is set to burst onto the scene with enormous fanfare and hyperbole which unfortunately places it in the realms of ‘unreality’ before it even starts. It is a mistake by the CCP leadership to place the nation’s hopes on a converted, old, Soviet, rust-bucket. However this mistake is already in full swing, with Xinhua describing the ship as embodying “70 years of Chinese hopes".

The ship will be under incredible pressure to speed through the learning curve on how to run a modern day carrier. Add on to this the expectations of 1.2billion people and it is enough to sink any ship. I can’t begin to imagine the pressure the captain and his pilots will be under and that’s just in peacetime.

So, if war should break out, what might we expect from the Shi Lang (Varyag)?

Unfortunately in the annals of maritime history, fate is rarely kind to new-pretenders and their capital ships. One only needs to look at the fates of the Bismark, hunted down and destroyed by the nimbler, more experienced Royal Navy. Or the Yamato class super battleships, picked off by the US airforce, to grasp that capital ships often serve as good target practices and nothing else.

In reality though, I think the Shi Lang’s fate maybe far less heroic and share a fate similar to Veinticinco de Mayo.

For those of you who don’t know, the Veinticinco de Mayo was the Argentinean aircraft carrier that played no role in the Falklands War in 1982. After hearing that the British Task Force was sailing, the De Mayo was put to sea to intercept, but bad weather prevented any attack and it returned to port. Once in port it never left again for the duration of the war.

Why did it stay in port?

Because it knew for sure that it would be sunk by British subs. The British had thrown a 200mile exclusion zone around the Falkland Islands and another Argentinean capital ship, the General Belgrano had been sunk steaming away from the islands, killing 1,500 sailors and sending a clear message to the De Mayo that as soon as it entered deep water it would be hit. British subs had express orders to sink the De Mayo on sight, regardless of its destination.

So that was the end of the De Mayo, it sat out the war, useless, while the British brought in their two carriers Invincible and Hermes and quickly gained air superiority with their superior Sea Harrier jumpjets. 10,000miles from home, the Royal Navy was able to bring superior force to bear on the Argentineans who were just 400 miles away from the battle.

This is nothing to do with luck. It’s about experience, timing and utilization of kit, because having a carrier battle group requires a whole suite of ships to protect it. They’re not a beginners piece of kit. In a small navy, the amount of ships needed to protect a carrier puts huge pressures on the enitre navy. For the carrier to move into hostile territoy takes incredible amounts of coordination.

Unfortunately for the Shi Lang (Varyag) , it will ply its trade in seas infested with the subs of the world’s two most formidable fleets, the US and the Japanese. The Japanese navy cut its teeth on 60 years of Cold War, tracking the best of the Soviet fleet in the seas off Japan, China’s backyard, and the US navy needs no introduction. So, with just an infant anti-submarine fleet the Chinese Southern navy will be easily found wanting, leaving the Shi Lang with little protection, making it highly unlikely that it will ever be able to be brought to the fight.

One may add that the Chinese navy has the largest submarine fleet in the region, with over 60 boats. Surely these will be the counter weight to protect the Shi Lang? But this fleet too, is untested, with only a few boats being truly world class, and don’t forget, in WW2, the German Wolf-packs had more than 300 U-boats, yet they still weren’t able to win the Battle for the Atlantic.

On top of this, the Age of the Carrier is over. We are in the twighlight of the Carrier Strike Group’s power. America knows this and is slowly but surely moving away from them. Long-Range-Unmanned Strike is the future of warfare. Just like the Yamato Class Battleships of WW2 came at the end of the Age of the Battleship, so Shi Lang (Varyag) joins the party too late to make a difference.

I know that I may seem like a party-pooper, but I wager that the Shi Lang (Varyag) wont venture out of port if a serious conflict breaks out within the next 10 years, as the CCP wont want to risk losing it. That’s the price you have to pay when you place the hopes of an entire nation on one ship. China certainly deserves to have a carrier, but it is a mistake to pin the national interest upon a ship that is outdated before the first plane has even taken off.