5 Maps That Explain China's Strategy: Investing

5 Maps That Explain China's Strategy https://www.forbes.com/sites/johnmauldin/2016/02/25/5-maps-that-expla...
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5 Maps That Explain China's Strategy
Here's Why 2017 Could Be The Best

Year In Wall Street History
The sharp decline in Chinese stock
1 of 14 8/3/17, 6:21 PM
markets on Monday is a reminder

of two things. The first is the
continued fragility of the Chinese
market. The second is that any
economic dysfunction has political
implications, both in Chinese
domestic and foreign policy. This,
in turn, will affect Chinese
economic performance. It is
essential, therefore, to understand
Chinese national strategy.
The Peoples Republic of China

(PRC) has been portrayed as an
increasingly aggressive country
prepared to challenge the United
States. At the same time, aside
from relatively minor forays into
the South and East China Seas,
China has avoided significant
involvement in the troubles roiling
in the rest of Eurasia. There is a
gap between what is generally
expected of China and what China
actually does. To understand what
Chinas actual national strategy is,
it is helpful to follow the logic
inherent in the following five maps.
Lets begin by defining what we

mean by China. First, there is the
China we see on maps. But there is
also the China inhabited by the
Han Chinese, the main Chinese
ethnic group. Maps of the Chinese
state and the ethnic group would
look very different.
2 of 14 8/3/17, 6:21 PM
Han China is surrounded within

China by regions populated by
what are essentially other nations.
The four most significant are Tibet
in the southwest, Xinjiang in the
northwest, Inner Mongolia in the
north, and Manchuria in the
northeast. The first three are
recognized by Beijing as
autonomous regions while
Manchuria is a larger region made
up of three northeastern provinces.
Obviously, there are Mongolians
who live in Han China and Han
Chinese who live in Inner
Mongolia. No region is
homogenous, but these four
regions, with the limited exception
of Manchuria, are not dominated
by ethnic Han Chinese. About half
the territory of what we consider
China actually consists of Han
Chinese people.
These four regions are a buffer

around China, providing strategic
depth to repel invaders. All four, at
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one time or another, resisted

Chinese domination, as Tibet and
Xinjiang still do today. Xinjiang is
predominantly Muslim, and an
insurgency and terrorist movement
is particularly active there. Tibet is
less active but no less opposed to
Chinese domination. Inner
Mongolia and Manchuria are
generally content at the moment.
The mood in these regions varies,
but China must always be
concerned to maintain control.
Not incidentally, a very similar

geography emerges when we look
at rainfall patterns. Roughly 15
inches of annual rainfall is needed
to maintain an agricultural
economy. This line, called the 15-
inch Isohyet, is shown in the next
map along with areas of population
density in the Peoples Republic of
China.
The area east of the 15-inch Isohyet

is Han China plus parts of
Manchuria. The area to the west
and north are the buffers along
with some Han Chinese regions
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that are lightly populated. So one of

the reasons Han China can
dominate the buffer states is its
relative population advantage. But
this also means that the population
of China, totaling 1.4 billion people,
is crowded into a much smaller
area than an ordinary map would
show and much farther from most
neighbors of the PRC. But for now,
the rainfall line roughly defines the
limits of what we think of as the
Chinese.
The next map adds to this picture.

It is a map of annual per capita
income by province. It shows an
underlying division in China east of
the 15-inch Isohyet. First, the
economic difference between Han
China and the rest of the PRC is
striking. Per capita income in the
western buffers is between 30 and
50 percent lower than the median
income in the rest of China. And
the area in China that is above the
mediansome more than 100
percent above the medianis a thin
strip of provinces along the coast.
The interior of Han China is not as
bad off as the western buffers, but
is still well below conditions along
the coast. Economically, only the
coast is above the median. Every
other area is below it. And this
defines a division in Han China
itself.
5 of 14 8/3/17, 6:21 PM
However, per capita income is not a

measure of economic well-being
since it doesnt tell us anything
about the distribution of wealth. A
better measure is household
income. According to World Bank
data, over 650 million Chinese
citizens live in households earning
less than $4 a day. Just under half
of those live in households earning
less than $3.10 a dayor about
$1,000 a year.
This alone doesn't capture the true

reality. Obviously, the
overwhelming majority of these
people live outside the coastal
region since the coastal region is
much wealthier. Put another way,
most Chinese wealth is
concentrated 200 miles from the
coast. The next 5001,000 miles
west is a land of Han Chinese living
in Third World poverty. The China
that most Westerners think about
is the thin strip along the coast. The
fact is that China is an
6 of 14 8/3/17, 6:21 PM
overwhelmingly poor country with

a thin veneer of prosperity.
We can already see some strategic

realities emerging, but before we
turn to that, we need to consider
the next mapa terrain map of the
areas surrounding China.
Chinas southern border consists of

the Himalayas in the west and hilly
jungle country in the east. It is
impossible to conduct major
military operations in the
Himalayas, so talk of a Chinese-
Indian conflict is only possible for
those who have never tried to
supply an army. Similarly, as the
British and Americas have
discovered, conducting military
operations in the hilly jungles of
southeast Asia is a nightmare.
China cant invade anyone through
the south over land, nor can it be
invaded. Southern China is
protected by a true Great Wall.
To the north, the PRC is bordered

by Siberia. In the far east of Siberia,
it is possible to conduct war, but no
country has ever tried or conceived
of waging an extended war,
7 of 14 8/3/17, 6:21 PM
including invasion into Siberia, nor

has any country attempted to
mount an invasion from Siberia.
Therefore, except for the Pacific
Coast, China is secure and
contained.
There is occasional talk about

Chinese military operations in
Central Asia. First, this would have
to take place through the hostile
territory of Tibet or Xinjiang. The
major forces and supplies would
have to be transported over 1,000
miles from the industrial base in
Han China to the Chinese border.
The supply lines would pass
through desert and mountains. An
invasion of Astana in Kazakhstan
would require travelling a distance
of at least 700 miles through
mountains and near desert
grasslands. Fighting in these
ranges is as unlikely as invading
over the Himalayas.
In effect, China is an island in

Eurasia. It can move money around
and sometimes technology, but not
large modern armies. Therefore,
China is not a threat to its
neighbors, nor are they a threat to
China. Chinas primary strategic
interest is maintaining the
territorial integrity of China from
internal threats. If it lost control of
Tibet or Xinjiang, the PRCs
borders would move far east, the
buffer for Han China would
8 of 14 8/3/17, 6:21 PM
disappear, and then China would

face a strategic crisis. Therefore, its
goal is to prevent that crisis by
suppressing any independence
movement in Tibet or Xinjiang.
An equally urgent task is to assure

that social conflict does not arise
between the coastal region and the
Han interior. The loss of foreign
export opportunities has placed
pressure on the coast. Beijings
interest in maintaining stability in
the interior requires transfers of
money from the coast. However,
the coasts interests are focused on
the United States, Europe, and the
rest of Asia since these are the
coast's trading partners and the
interior is incapable of purchasing
the coasts products. No stimulus
imaginable can raise the interiors
income levels to the point that this
area could become a market for the
coast given the poverty they live in
currently. This would be a multi-
generational project.
This is not a new problem for

China. Prior to Britain and the
Opium Wars in the 19th century,
China was enclosed, isolated, and
relatively united. When the British
opened China, massive inequality
between the coast and the interior
arose with the coastal region being
more integrated into the global
economy than into Chinas
economy. This led to regionalism
9 of 14 8/3/17, 6:21 PM
and warlords, as each region had

unique interests. Mao went into the
interior on the Long March, raised
a peasant army, destroyed the
regional leadership, and enclosed
China. China was poor but united.
With his death, China went into the
next phase of its cyclereopening
itself and betting that this time the
coastal-interior split wouldnt arise.
The split has arisen, but the

political consequences have not yet
played themselves out, and the
strategy of the Communist Party is
to forestall this by a combination of
repressing any sign of opposition
and a massive purge among the
economic leadership. This is
designed to both hold the coastal
wealthy and the interior poor in
check. Whether this will work
depends on whether the Peoples
Liberation Army, essentially a
domestic security force, can
withstand the forces tugging it in
various directions. Notably, a purge
and reorganization has just begun
in the PLA.
The core strategy of China is

internal. It has only one external
strategic interestthe seas to the
east.
10 of 14 8/3/17, 6:21 PM
China has vital maritime interests

built around global trade. The
problem is the sea lanes are not
under its control, but rather under
American control. In addition,
China has a geographic problem.
Its coastal seas are the South China
Sea, south of Taiwan, and the East
China Sea, to its north. Both seas
are surrounded by archipelagos of
island states ranging from Japan to
Singapore with narrow passages
between them. These passages
could be closed at will by the US
Navy. The US could, if it chose,
blockade China. In national
strategy, the question of intent is
secondary to the question of
capability. Since the US is capable
of this, China is looking for a
counter.
One counter would be to establish

naval bases elsewhere in Asia.
However, isolated by a US blockade
from these bases, this would be of
little use besides shaping regional
11 of 14 8/3/17, 6:21 PM
psychology. Ultimately, the Chinese

must create a force that would
make it impossible to block access
to the Indian and Pacific Oceans.
The Chinese are aiming to build a
navy that could match the US;
however, there are two obstacles to
this. First, building warships and
support vessels and facilities is
fiendishly expensive, and China has
put an urgent priority on domestic
issues in the interior. Second,
building ships is not the same as
building a navy. Ships must be
forged into fleets, and this requires
commanders and staffs
experienced in very complex
warfare. China has little naval
tradition, and building those staffs
without a tradition to draw on is
not something that would take a
generation. Admirals who know
how to fight carrier wars are as
essential as aircraft carriers.
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5 Maps That Explain China's Strategy: Investing

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5 Maps That Explain China's Strategy https://www.forbes.com/sites/johnmauldin/2016/02/25/5-maps-that-expla...

5 Maps That Explain China's Strategy

Here's Why 2017 Could Be The Best

The sharp decline in Chinese stock

markets on Monday is a reminder

The Peoples Republic of China

Lets begin by defining what we

Han China is surrounded within

These four regions are a buffer

one time or another, resisted

Not incidentally, a very similar

The area east of the 15-inch Isohyet

that are lightly populated. So one of

The next map adds to this picture.

However, per capita income is not a

This alone doesn't capture the true

overwhelmingly poor country with

We can already see some strategic

Chinas southern border consists of

To the north, the PRC is bordered

including invasion into Siberia, nor

There is occasional talk about

In effect, China is an island in

disappear, and then China would

An equally urgent task is to assure

This is not a new problem for

and warlords, as each region had

The split has arisen, but the

The core strategy of China is

China has vital maritime interests

One counter would be to establish

psychology. Ultimately, the Chinese

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