Trade wars and real wars: another perspective on the world economy

Going by growth forecasts, this is a pretty good time for the world economy. Yet a new report warns of big risks, some of which are already coming to bear through US trade policy and stock market jitters.

China Trump auf erster Asien-Reise (picture-alliance/AP Photo/A. Harnik)

If positive global economic growth forecasts are what really get you going, then what a time this is to be alive.

The most recent global growth forecasts from the heavy hitters — the IMF, the World Bank, the World Economic Forum and so on — talk of “buoyancy” and “sustained upswings”, of “cyclical pickup” and “rising sentiment”.

Global growth rates of between 3 and 4 percent, rising all the time in 2018 and 2019 — what’s not to love?

Plenty, according to the Economist Intelligence Unit (EIU), a global business intelligence research and analysis group that regularly assesses major risks to global economic health.

The unit has published what it determines to be the top 10 risks to the global economy over the next two years. For those high on optimism, it makes for sobering reading.

Using a metric combining the probability of a given event with the severity of its impact, the report says the two gravest threats to world economic health over the next two years come from the USA.

Watch video01:36

The growing global economy

One is a possible prolonged collapse in global stock markets, regarded as having the same level of risk as a global trade war precipitated by US protectionist policies — something which looks increasing likely after US President Donald Trump announced stringent new tariffs on steel and aluminum imports.

Watching for the tide to go out

“They are both risks that we think have a decent chance of happening, maybe a 20 or 30 percent chance,” Philip Walker, the editor of the report, told Deutsche Welle. “They would have a severely detrimental impact on the global economy and would lower global GDP significantly.”

At the start of February, global stock markets plunged on the back of stronger-than-expected US jobs figures, which had led to fears over inflation.

“The US stock markets are incredibly sensitive to any data that points towards a quicker rate of monetary tightening than they are currently factoring in,” explained Walker.

He says that a period of “great uncertainty” is ahead for the next few months, particularly because of the growing expectation that the US Federal Reserve will normalize its monetary policy and increase interest rates, with other major treasuries around the world, such as the ECB, likely to follow.

Many of the positive global growth forecasts stem from these expectations, but the EIU’s risk practice director says there is “a certain frothiness” to much of this, particularly when it comes to company valuations.

USA Wall Street - Finanzmärkte in Panik (picture alliance/dpa/XinHua)EPReport editor Philip Walker says a period of “great uncertainty” is ahead for stock markets

“How many companies have been able to keep going because they have been able to access funds so cheaply?” he asks. “How many, when the tide retreats a little bit, are going to be left highly exposed?

Meddling with the forces of nature

The probability of a global trade war, rated at around 30 percent by the EIU, has surely increased in the last 24 hours. The announcement that the USA will charge tariffs of 25 percent on steel imports and 10 percent on aluminum has sparked outrage from several key US trade partners.

Trump’s response, via a tweet, that “trade wars are good, and easy to win” is unlikely to sow union.

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!

The report outlines two distinct, short-term risks with regard to global trade. One is the kind outlined above, that the Trump rhetoric of 2016 and 2017 — largely aimed at China — will turn into action in 2018, as it seems it already has.

The second is the possibility that the USA will pull out of the North America Free Trade Agreement (NAFTA), something which would have a deep global impact, according to Philip Walker.

Watch video02:06

US tariffs could spark trade war

“We are in a situation where global supply chains are so much interlinked, this (NAFTA threat) isn’t just a North American issue, or an America-China issue — it is global,” he says.

What is clear, according to this report, is that the primary risk around global trade relates to how China will react to US protectionist policies. So far, the reaction from the world’s second largest economy to the US policy shifts of 2018 has been relatively measured.

On January’s decision to slap tariffs on washing machines and solar panels, Beijing’s Commerce Ministry’s said it would collaborate with the WTO to defend its interests. On steel and aluminum — which China does not import in big volume to the US — the reaction was notably chilled.

“Nothing can be done about Trump. We are already numb to him,” said Li Xinchuang of the China Iron and Steel Association.

“If China were to react disproportionately” warns Walker, “or if the US were to react incredibly disproportionately, that is how you could see that very quickly magnifying into a wider trade issue.”

Nuclear threats, cyberattacks, proxy wars

Plenty of other threats to global economic stability abound, some more likely, and indeed more chilling, than others.

Many of the other risks relate to overt war. The third highest relates to the possibility of hostilities breaking out in the South China Sea over territorial disputes, with China claiming territorial waters as far south as the Malaysian coast.

Bildergalerie Jahresrückblick 2017 International (Reuters/KCNA)Tensions are high on the Korean Peninsula

Then there’s the possibility of something dramatic happening on the Korean Peninsula, where the North Korean nuclear program continues to stoke major tensions. The EIU sees this as a low probability event, with South China Sea hostilities seen as significantly more likely.

Then there are fears over the possibility of outright war between Middle Eastern rivals Saudi Arabia and Iran, whose long-running geopolitical dispute has prompted several proxy wars in the region and an increasing polarization over where different countries’ loyalties lie.

Other risks identified by the EIU are:

  • A major cyberattack crippling corporate or government activities
  • China suffering a prolonged economic downturn
  • Oil prices falling if the current OPEC deal breaks down
  • Multiple countries withdrawing from the eurozone

Risky business

It’s not all doom and gloom. There is one “positive” risk, namely the chance of global growth surging above 4 percent. But the overall picture points to danger lurking around most corners.

The EIU assess the top ten global risks once a month, but it has decided to publish the latest findings as it believes the global economy is facing its highest level of risk in several years.

Read more: In Davos, the world’s elite are optimistic

“What we see over the last few months is this disconnect between the global economic story and the global geopolitical and financial risk story,” explains Walker.

Watch video02:13

Cyberattacks, drought, natural disasters among biggest global risks

Unemployment may be low, inflation may be seemingly under control and economic forecasts are positive but behind all that, there is a sense in this report that major tectonic plates, especially in the US-China relationship, are shifting.

“Around these changing relationships, we are seeing so many potentially devastating risks crop up but yet we have this bright economic picture. It’s that disconnect that we wanted to try and give voice to in this report,” says Walker.

“There are major risks at play. We are not saying any of them are certainly going to happen but for the companies, governments and organizations that use us, we want to help them prepare for a world in which something catastrophic does happen.”


Oil tanker in South China Sea bursts into flames and sinks

After more than a week burning in the South China Sea, an oil tanker that collided with a freighter has sunk. Three bodies were recovered this week but authorities say there is now “no hope” of finding survivors.

A rescue ship works to extinguish the fire on the burning Iranian oil tanker Sanchi

An Iranian oil tanker that had been burning in the South China Sea after crashing into a freighter over a week ago burst into flames and sank on Sunday, with authorities saying there was “no hope” of finding survivors.

Around midday (local time) on Sunday, the ship which had been burning since January 6 “suddenly ignited,” with the entire vessel burning fiercely from end-to-end and a cloud of smoke around 800-1,000 meters (2624-3280 feet) high, China’s Transport Ministry said.

Read more: Burning tanker in East China Sea ‘in danger of exploding’

The ship, named Sanchi, later sank, the Chinese state official news agency Xinhua cited the State Oceanic Administration as saying.

Authorities had previously expressed concern over the possibility of the tanker exploding.

Only three bodies were recovered from the burning vessel during rescue operations, with 29 crew members still unaccounted for. The crew was all Iranian expect for two Bangladeshis.

The 'Sanchi' oil tanker bursts into flames in the South China Sea. (Reuters/China Daily)The 274-meter-long (898 feet) ‘Sanchi’ oil tanker burst into flames and sank on Sunday, after more than a week burning at sea

‘No hope’ of survivors

“There is no hope of finding survivors among the members of the crew,” Mohammad Rastad, spokesman for the Iranian rescue team dispatched to Shanghai, told Iran’s state broadcaster in Tehran before the tanker went down.

Rastad said information from members of the crew on board the freighter that the tanker collided with suggested all the personnel on the Sanchi were killed in the first hour of the accident “due to the explosion and the release of gas.”

Read more: Bodies found on burning oil tanker in East China Sea

Two bodies recovered on Saturday morning were found on the lifeboat deck of the Panama-registered boat, state CCTV reported, in a rescue attempt that also saw the rescue team manage to retrieve the ship’s data and video recordings.

Another body suspected to be from the ship was recovered from the sea on Monday and brought to Shanghai for identification.

Read more: Nearly 70 killed in Nigeria fuel tanker blaze

Rescue efforts on Saturday had been hampered by temperatures of up to 89 degrees Celsius (192 degrees Fahrenheit), which meant the rescue team was unable to continue the search for missing people in the crew’s living quarters.

Large amount of oil still burning

China’s State Oceanic Administration on Sunday said that because the hull of the ship had detonated, a large amount of oil in surrounding waters was on fire, according to the official Xinhua news agency.

The Administration said it would expand the scope of its monitoring and “quickly ascertain the spread and drift of overflowing oil” from the wrecked ship.

The Hong Kong-registered cargo ship that the Sanchi collided with, which was carrying grain, suffered some damage but “without jeopardizing the safety of the ship,” the ministry said. The 21 Chinese crew aboard the vessel were all rescued.

The cause of the collision is still unclear.

Graphic comparing major oil tanker spills

law/jlw (AP, Reuters)


China’s Xi Jinping asserts territorial integrity amid regional tensions

Marking the 90th anniversary of the People’s Liberation Army, China’s president has vowed to “defeat all invasions.” Xi also pledged to expand an ambitious modernization program of the military.

Watch video01:10

China displays its military might

China will never allow its sovereignty to be compromised, said Chinese President Xi Jinping on Tuesday during a ceremony marking the 90th anniversary of the People’s Liberation Army.

“The Chinese people love peace. We will never seek aggression or expansion, but we have the confidence to defeat all invasions,” Xi said.

Beijing has raised tensions in the region with its increasingly assertive stance in territorial disputes. In the South China Sea, it has built military facilities on artificial islands and taken control of territorial waters claimed by the Philippines, Malaysia, Vietnam, Taiwan and Brunei.

Relations between Beijing and Taiwan in particular have soured over the past year after the self-ruled island elected President Tsai Ing-wen from a pro-independence party. His nationalist predecessor had pursued a China-friendly course. Now, Taipei has rebuffed the “one China policy” that governed relations since the early 90s.

“We will never allow any people, organization or political party to split any part of Chinese territory out of the country at any time, in any form … No one should expect us to swallow the bitter fruit that is harmful to our sovereignty, security or development interests,” Xi added.

A map showing China's territorial assertions in the South China Sea

‘Strong military’

The Chinese president said that over the past five years, the country’s military has successfully “remodeled” its power structure as well as its public image.

When Xi rose to power in 2012, he vowed to modernize the Chinese military, considered the largest in the world. Since then, Beijing has sought to overhaul its technological capabilities and invest in new equipment, including stealth fighters and aircraft carriers.

“To build a strong military, China must unswervingly adhere to the Party’s absolute leadership over the armed forces, and make sure that the people’s army always follows the Party,” Xi said.

Read more: Djibouti military base ‘ a manifestation of China’s global interests’

Although it has been decades since China last fought a war, the government insists that its ambitious modernization program for the military is to adequately defend its economy.

As part of the 90th anniversary celebrations for the People’s Liberation Army, Xi presided over an elaborate military parade on Sunday at a remote training base in China’s Inner Mongolia region.

ls/rt (Reuters, AP, dpa)



Courtesy: DW

Tillerson in Beijing set to talk on North Korea, South China Sea

Rex Tillerson, the U.S. Secretary of State, arrived in Beijing on Saturday for a face-to-face meeting with a China official who last week likened the U.S., South Korea and North Korea to speeding trains ready to hit each other.

Tillerson’s visit followed his remarks in South Korea on Friday in which he warned that pre-emptive military action against North Korea might be necessary if the threat from their weapons program reaches a level “that we believe requires action.”

China, the North’s biggest source of diplomatic support and economic assistance, has yet to respond to his remarks, although Beijing has called repeatedly for steps to reduce tensions.

Chinese Foreign Minister Wang Yi, with whom Tillerson was due to meet on Saturday afternoon, spoke about the tension between the countries. He said, “The question is: Are the two sides really ready for a head-on collision?” Wang told reporters. “Our priority now is to flash the red light and apply the brakes on both trains.”

Wang said North Korea could suspend its nuclear and missile activities in exchange for a halt in joint U.S.-South Korea military drills, a proposal swiftly shot down by U.S. Ambassador to the United Nations, Nikki Haley, who said Washington has to see “some sort of positive action” from North Korea before it can take leader Kim Jong Un seriously.

Tillerson: Nothing is off the table in dealing with N. Korea

Tillerson’s comments in Seoul that “all of the options are on the table,” including possible military action, are likely to be deeply disconcerting to Beijing, which fears that a collapse of Kim’s regime would send waves of refugees into northeastern China and land South Korean and American forces on its border.

China has agreed reluctantly to U.N. Security Council resolutions sanctioning North Korea, while calling for renewed dialogue under the Beijing-sponsored six-nation format that broke down in 2009.

In a further sign of its frustration with Pyongyang, China last month banned imports of North Korean coal for the rest of the year, potentially depriving Kim’s regime of a key source of foreign currency.

Past U.S. administrations have considered military force because of North Korea’s development of nuclear weapons and ballistic missile to deliver them, but rarely has that option been expressed so explicitly as by Tillerson.

North Korea has accelerated its weapons development, violating multiple Security Council resolutions without being deterred by sanctions. The North conducted two nuclear test explosions and 24 ballistic missile tests last year. Experts say it could have a nuclear-tipped missile capable of reaching the U.S. within a few years.

China has stridently opposed the deployment of a U.S. missile defense system to South Korea, saying its X-band radar can peer deep into China to monitor flights and rocket launches. The U.S. says it’s a system focused on North Korea. China sees it as a threat to its own security.

Tillerson’s visit to Beijing is the final stop on his three-nation swing through Northeast Asia, which began in Japan. State Department officials have described it as a “listening tour” as the administration seeks a coherent North Korea policy, well-coordinated with its Asian partners.

In Beijing, he is also expected to discuss China’s claim to virtually the entire South China Sea, including its building of islands atop coral reefs, complete with airstrips and military installations.

During his confirmation hearings in January, Tillerson compared China’s island-building and deployment of military assets to Russia’s 2014 annexation of Crimea, and suggesting China’s access to the island should not be allowed.

While President Donald Trump during his campaign pledged to slap 45 percent tariffs on imports from China and label the country a currency manipulator, there has been little sign of his doing either. His pick for U.S. trade representative, Robert Lighthizer, has said he would use a “multi-faceted approach” to cracking down on Chinese trade abuses.

Tillerson’s trip is also expected to highlight the Trump administration’s lack of concern with human rights abroad, formerly a key element of U.S. policy toward China and a major irritant for Beijing.

In a departure from past practice, Tillerson skipped the launch of an annual report on human rights last week that cited numerous abuses by China. He has also said the U.S. would not continue participating in the U.N. Human Rights Council unless it undergoes “considerable reform.”

The Associated Press contributed to this report

China is embroiled in an internal political struggle

Xi JinpingChina’s Communist Party Chief Xi Jinping reads at the Great Hall of the People during the third plenary session of the National People’s Congress (NPC) in Beijing March 10, 2013. REUTERS/Kim Kyung-Hoon

China’s problems are not entirely external and are not limited to the new Trump administration. China is now embroiled in an internal political struggle around the efforts of President Xi to make himself the most powerful Chinese leader since Mao Zedong.

In reaction to the excesses of the Mao era — including the disastrous Great Leap Forward, which caused famine in the 1950s, and the destructive Cultural Revolution of 1966–76 — China developed a new model of collective leadership under Deng Xiaoping beginning in the 1980s.

Deng himself was never president; he held a series of lesser posts. However, he was the architect of the current presidential system and was regarded as China’s “paramount leader” from 1978 to 1987. Deng held what the Chinese call the “Mandate of Heaven,” a quasi-religious concept that has bestowed legitimacy on Chinese emperors for over 3,000 years.

The new model still had a single leader, but the leader was chosen by consensus among the Central Committee members of the Communist Party. Each leader was elected to a five-year term (in rigged elections), and was permitted to serve a second five-year term (some did so, some did not).

Importantly, at the beginning of a leader’s second five-year term, he would designate one or two likely successors. Those designated successors would then jockey for position among the Central Committee members. Slowly a consensus would emerge around one figure. That individual would then be selected as president at the end of the current president’s second term.

This system ran like clockwork through the presidential terms of Li Xiannian (1983–1988), Yang Shangkun (1988–1993), Jiang Zemin (1993–2003), Hu Jintao (2003–2013), and so far in the first term of Xi Jinping (2013–2018).

President Xi’s first five-year term expires in March 2018. He is certain to be elected to a second term, but he has so far deviated from the script by not designating any potential successors for a smooth transition in 2023. At a minimum, this will make Xi more powerful after 2018 because it will eliminate the lame duck factor.

Some observers fear that Xi’s real ambition is to capture a third-term running until 2028. This would be similar to Vladimir Putin’s gymnastics in Russia where he has used various means to hold power since 2000 and is expected to remain in power at least through 2020.

Xi has also pursued an “anti-corruption campaign” that has conveniently resulted in the arrest of two of his most powerful rivals, Bo Xilai, the highly ambitious former mayor of Chongqing, and Zhou Yongkang, the head of China’s internal security apparatus. This pattern also mimics Putin’s Russia where corruption is tolerated as long as it is for personal enrichment, and does not transmute into geopolitics of political power. Those who aspire to power are brought down and arrested by the leadership.

The question of whether Xi will disrupt the two-term system and seek a third term is open for now. Xi’s actions could provoke a backlash that will cause him to lose the Mandate of Heaven. At a minimum, the political uncertainty resulting from Xi’s moves makes policy responses to Trump’s provocations more difficult to predict. Policymakers are likely to make political rather than economic calculations in their decision-making. Economic policy optimization will suffer as a result.

China also suffers from a host of internal contradictions to its global economic ambitions. Internet censorship, which I experienced first-hand during my recent visit, maintains Communist control in the short-run but stifles the creative exchange of ideas crucial to technological advances. (The internet was originally invented by the Pentagon not as a news or social media platform, but as a way for the best thinkers to exchange ideas quickly during our Cold War rivalry with Soviet scientists.)

chinese baby

China’s one-child policy, beginning in the early 1980s, has led to two demographic disasters. The first is that growth in the working age population is now flat, which is a headwind for economic expansion. The second is that a cultural preference for male children has led to sex-selective abortion and female infanticide. This has created a gender skew of 20 million men in their twenties and thirties with no prospect for marriage. Through adverse selection by women, the unmarried men are the least attractive and least skilled.

Many of these men are being forced into military service and sent overseas to supervise mines and industrial enterprises in Africa and South America. In any case, they are ripe for anti-social behaviors and a threat to social stability.

This mix of adverse demographics, technological bottlenecks, and political intrigue are all detriments to China’s economic development under the best of circumstances. With new challenges thrown at China by the Trump administration, internal instability may act as a force multiplier to external pressure and lead to a breakdown of social order.

Geopolitics and Instability

The tensions with China around Trump’s policies on trade, tariffs, and currency manipulation are a sideshow compared to the much larger issue of Trump’s pivot to Russia.

From 1946 to 1989, geopolitics was fundamentally a matter of managing the Russia-U.S. condominium of world power and geopolitics. China was potentially powerful (as recognized by President Nixon in 1972), but was in fact weak, poor, isolated, and chaotic. Russia and the U.S. controlled the world. All other countries were either allies, satellites, proxies or irrelevant. Flashpoints erupted in Berlin, Cuba, Vietnam, and Afghanistan, but U.S. and Soviet troops never fired on each other. The risks of escalation to nuclear war and the end of civilization were too great.

Since 1989, a tripartite world order has emerged involving Russia, China and the U.S. The strategic goal in a three-party game is to align with one of the other parties to the detriment of the third. The U.S. played this two-against-one game well from 1989 to 2009, but has failed utterly since then.

The fall of the Berlin Wall in 1989, coupled with the liberation of Eastern Europe, the 1991 collapse of the Soviet Union, Russian withdrawal from Afghanistan, and the emergence of a democracy in Russia, all resulted in close U.S.-Russia ties, to the point that U.S. “experts” designed much of Russia’s legal and financial infrastructure.

China was the odd-man-out in the aftermath of the violent suppression of the Tiananmen Square demonstrations in 1989. I made my first journeys to Red China during this period, in 1992 and 1993. I met almost no Americans and was under constant surveillance by internal security service “minders” posing as mandatory guides.

It was during this odd-man-out stage that China executed its first maxi-devaluation. The USD/CNY cross-rate went from 5.7 to 8.7 almost overnight in 1994. It was also during this period that China perfected the manufacturing juggernaut and transportation networks that led to its export success, massive reserve accumulation, and unprecedented economic growth.

The game changed dramatically in 2000. The U.S. pivoted away from Russia toward China. The election of Vladimir Putin in 2000 involved an assertion of Russian nationalism including territorial claims in the Russian periphery of Georgia, Ukraine, Moldova and the Baltic Republics. Putin was reassembling the old Soviet Empire into a new Russian Empire.

chinese factoryNew York Times

Meanwhile, China manufacturing prowess and willingness to buy U.S. Treasury paper made it the ideal trading partner for the U.S. The Bush administration deftly embraced China and made Russia the odd-man-out. U.S.-Russian relations hit a low in August 2008 when Russia invaded Georgia, a U.S. ally. Bush was too preoccupied with the global financial crisis and the War in Iraq to muster much of a response.

Beginning in 2009, the Obama administration failed to notice that Russia and China were playing their own version of the three-party game with the U.S. as the odd-man-out. Russian-Chinese cooperation expanded in initiatives such as the Shanghai Cooperation Organisation, the BRICS institutions, the New Silk Road initiative, and bilateral deals on currency swaps, oil and natural gas, pipeline infrastructure, and arms sales.

Obama was lulled into complacency by Chinese purchases of Treasury debt even as China’s currency manipulation, trade subsidies, and damage to U.S. manufacturing metastasized. By 2016, U.S. relations with Russia were at a post-Cold War low, while relations with China were on a downward trajectory. Russia and China had never been closer since the mid-1950s. The U.S. was the new loser in the three-party game.

With the rise of Donald Trump, the U.S. is back in the game, this time with the promise of much closer relations with Russia and confrontation with China. Putin seems willing to pursue this round with his new best friend Donald Trump. China is beginning to feel the chill of once again being the odd-man-out.

Russia and the U.S. are the two largest energy producers in the world. With cooperation from Saudi Arabia, they can dictate the global price of energy. The appointment of Rex Tillerson, former CEO of ExxonMobil, as Trump’s Secretary of State puts the use of the energy weapon in deft hands. China will be pressured for cooperation on issues such as the South China Sea, North Korea’s nuclear program, and Taiwan relations.

As is the case regarding concessions on trade and the currency, China is being asked to make concessions it cannot give. Beijing regards Taiwan as an integral part of China, a temporary “breakaway province,” not a separate political entity. China’s position on Taiwan is existential and non-negotiable.

China likewise has little room for concessions on its claim of near-complete control of the South China Sea. That arm of the Pacific Ocean is rich in fish that China needs to feed its people. China is unwilling to share the catch with Vietnam and the Philippines. Numerous boardings, collisions, and seizures have happened already. A greater armed confrontation there is just a matter of time.

China could help with regard to North Korea’s nuclear program. China has many transportation, banking, and food chokepoints it could use to stop North Korea’s bad behavior. The problem is China fears North Korea will retaliate by opening its border with China and allowing millions of desperate North Korean citizens to flood into China as destitute refugees. The result would be social and economic destabilization in Manchuria, a part of China already suffering from its rust belt status.

Given a revival of the Russian-U.S. condominium of power on friendly terms, and China’s inability to deliver concessions demanded by Trump, the prospect for U.S.-China geopolitical relations is poor.

This will only worsen the already deteriorating economic relations between the two largest economies in the world.

Thank you for reading the Daily Reckoning,

Read the original article on The Daily Reckoning. Copyright 2017.

China tests new extremely long-range missile that could muscle the US out of the South China Sea

Alex Lockie
Business InsiderJanuary 26, 2017
China long range missile J-11b
China long range missile J-11b

(Image shows the unnamed Chinese long range missile that could be a big problem for the US.dafeng cao via Twitter)
Chinese media on Thursday indicated ongoing work on a new long range air-to-air missile that seems tailor-made to give the US Air Force problems when operating in the Pacific.

As Business Insider has previously covered, tensions between the US and China have been steadily ratcheting up over the last few years, and they have spiked since Donald Trump took office after breaking with decades of tradition and taking a call from Taiwanese President Tsai Ing-wen.

Photographs posted on IHS Jane’s and on Chinese media show China’s J-11B and J-16 fighters carrying an as-of-yet unnamed missile that Air force researcher Fu Qianshao told Chinese state-run media has a range of almost 250 miles — much further than current Chinese or even US capabilities.

“The successful development of this potential new missile would be a major breakthrough,” Reuters reports Fu as telling a Chinese state-run newspaper.

According to Fu, the missile would enable the People’s Liberation Army Air Force to “send a super-maneuverable fighter jet with very long-range missiles to destroy those high-value targets, which are the ‘eyes’ of enemy jets.”

The US’s airborne early warning and control planes (AWACS), basically giant flying radars, are the “eyes” Fu refers to. These planes can detect enemy movements and give targeting data to US fighter jets and bombers. Without them, the US Air Force faces a steep disadvantage.

E-2 Advanced Hawkeye
E-2 Advanced Hawkeye

(US Navy E-3 Hawkeye’s fly above Japan’s Mt. Fuji.Lt. J.G. Andrew Leatherwood/US Navy)

This echoes analysis provided to Business Insider by Australia Strategic Policy Institute‘s senior analyst Dr. Malcolm Davis, who told Business Insider that “the Chinese are recognizing they can attack critical airborne support systems like AWACS and refueling planes so they can’t do their job … If you can force the tankers back, then the F-35s and other platforms aren’t sufficient because they can’t reach their target.”

The new Chinese missile could grant the PLA Air Force the ability to cripple the US’s airborne support infrastructure, and figures into a larger anti-access area denial (A2AD) strategy the Chinese have been developing for years now.

In combination with China’s massive, networked array of multiphase radars across artificial, militarized islands in the South China Sea, these missiles and the coming J-20 strike aircraftshow that China has leveraged multiple technologies to side-step the US’s emerging stealth capabilities.

According to Davis, the US’s advantage over adversaries like China has faded over the last few years. “The calculus is changing because our adversaries are getting better,” Davis said of China’s emerging capabilities.

China air force j-11
China air force j-11

(Older Chinese jets like the J-11s could be devastating with extremely long range missiles.Xinhuanet)

Davis said that adversaries like China and Russia are “starting to acquire information edge capabilities that [the US] has enjoyed since 1991 … The other side had 20 years to think about counters to the Joint Strike Fighter (the F-35). Given the delays, by the time [the F-35] reaches full operation capability, how advanced are the Chinese and Russian systems going to be to counter it?”

As a possible solution, Davis recommended pairing fleets of unmanned vehicles with the F-35 to give the US a quantitative advantage as Chinese advances, like the new missile and plane, erode the US’s qualitative edge.

“We don’t have time to be leisurely about the fifth generation aircraft,” said Davis. “The other side is not going to stand still.”

NOW WATCH: Here’s why everyone should be paying attention to China’s ambitious space program

More From Business Insider

China hits back at US over South China Sea claims

This aerial view of the city of Sansha on an island in the disputed Paracel chain, which China now considers part of Hainan province on July 27, 2012Image copyrightGETTY IMAGES
Image captionChina is one of a number of countries who lay claim to parts of the South China Sea

China has asserted its “indisputable sovereignty” over parts of the South China Sea after the Trump administration vowed to prevent China from taking territory in the region.

The Chinese foreign ministry said Beijing would “remain firm to defend its rights in the region”.

White House spokesman Sean Spicer said on Monday the US would “make sure we protect our interests there”.

Barack Obama’s administration refused to take sides in the dispute.

It did, however, send B-52 bombers and a naval destroyer last year, and the then US Secretary of State John Kerry spoke out over what he called “an increase of militarisation from one kind or another” in the region.

Several nations claim territory in the resource-rich South China Sea, which is also an important shipping route.

Read more:

The new US president has taken a tough stance against China, and Mr Spicer told reporters “the US is going to make sure we protect our interests” in the South China Sea.

“If those islands are, in fact, in international waters and not part of China proper, yeah, we’ll make sure we defend international interests from being taken over by another country,” he said, without giving further details.

The Chinese government responded by saying that the US was “not a party to the South China Sea issue”.

Foreign Ministry spokesperson Hua Chunying said China was “committed to peaceful negotiations with all countries concerned” in the dispute, and said it “respects the principles of freedom of navigation and over-flight in international waters”.

But, she went on: “Our position is clear. Our actions have been lawful.”

‘Devastating confrontation’

Mr Spicer’s comments echo those of Donald Trump’s new Secretary of State Rex Tillerson.

During his nomination hearing, Mr Tillerson said the US should block access to islands being built by China in the South China Sea, likening it to Russia’s annexation of Crimea from Ukraine.

“We’re going to have to send China a clear signal that first, the island-building stops and second, your access to those islands also is not going to be allowed,” he told the US Senate Foreign Relations Committee.

The Chinese state media responded by warning that such actions would lead to a “devastating confrontation”.

line break

What is the South China Sea dispute?

Map of South China Sea

Rival countries have wrangled over territory in the South China Sea for centuries, but tension has steadily increased in recent years.

Its islets and waters are claimed in part or in whole by Taiwan, China, Vietnam, the Philippines, Malaysia and Brunei.

Beijing has been building artificial islands on reefs and carrying out naval patrols in waters also claimed by these other nations.

Although the Obama administration insisted it was neutral, it spoke out strongly against the island-building and sought to build ties with, and among, the South East Asian nations whose claims overlap those of China.

In July an international tribunal ruled against Chinese claims, backing a case brought by the Philippines, but Beijing said it would not respect the verdict.

The frictions have sparked concern that the area is becoming a flashpoint with global consequences.

%d bloggers like this: