Thursday, June 5, 2014

Gary Shilling worries of rising potential for conflict in Asia

China believes that, as a world economic power, it must have a major military presence. The government’s budget calls for a 12.2 percent increase in spending in 2014, much greater than the 7.5 percent GDP growth target, yet in line with past increases. Defense spending — $132 billion for 2014 — is more than double the 2007 level (although some experts believe China vastly understates its defense spending).

China’s military outlays are only 22 percent of the US’s $608 billion, but China’s costs are much lower. And while China’s spending grows rapidly, President Barack Obama is calling for a $400 million cut in defense outlays in fiscal 2015. China’s official military budget also excludes big-ticket items such as arms imports and military components of its space program.

One danger sign of a more muscular military sector is the ongoing spat with Japan over disputed islands in the East China Sea, which may have oil under them. China is also in a dispute with Vietnam over China’s deployment of an oil rig into South China Sea waters that both countries claim.

Then there is the problem of a nuclear-armed and unpredictable North Korea. China probably worries a lot about North Korea and its volatile dictator, Kim Jong-un. But China no doubt likes to have the Hermit Kingdom as a buffer against a militarily strong South Korea.

I’m not predicting major conflicts in Asia any time soon. Still, rising nationalism in China and Japan, to say nothing of Russia, is a concern.