The great leap forward!

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By Ben Blanchard, Reuters

China says no expiry date on Communist Party rule

Looking at Mao's life, his achievements should be put first, and his mistakes second ...

BEIJING (Reuters) - China's Communist Party sees no reason why it cannot stay in power indefinitely, having made the nation into the envy of the world with its economic success, one of the Party's top official historians said on Thursday.

Li Zhongjie, a deputy head of the Party's History Research Centre, made it clear that China will use the impending 90th anniversary of the Party's founding as a time for rousing pride, rather than reflection on a history that has spanned war, revolution, mass famine and deadly purges.

Under the Party's rule, China had made leapfrog developments, Li told a news conference, and he said it was foolish to expect any party to want to give up power.

"Over the last 90 years, especially the last 30 years of reform and opening up, we have made major achievements. This is something the world basically recognises," Li said, ahead of the Party's anniversary of its 1921 founding on July 1.

"I could ask, 'Mr. Obama, does your Democratic Party still want to contest the election'? Do you still want to stay in power? They would think that a weird question. Of course our Party hopes to remain in power.

"...Objectively, the issue is rather: how is your rule, and how effective is it? Is it welcomed by the people? Are you running the country well, or into the ground? The Communist Party has built China to what it is today. Many countries in the world are extremely envious.

So why can't we carry on? It's a very simple question."



His impassioned answer drew applause from the audience, made up mainly of state media and Chinese academics, with a smattering of foreign reporters.

While the Party's rule has seen China become the world's second-largest economy, lift millions out of abject poverty and put men in space, critics say it has come at the expense of individual freedoms, with the Party brooking no dissent.

Under the late Mao Zedong, China went through disasters such as the 1958 Great Leap Forward campaign to catapult it to prosperity, but ended in a three-year famine in which an estimated 30 million people starved to death.

"Objectively speaking, Comrade Mao made some mistakes later in his life, which created major damage," Li said. "But looking at Mao's whole life, his achievements should be put first, and his mistakes second ... He established 'New China' and socialism's basic system.

"We should 'seek truth from the facts' in analysing and researching the lessons from Mao's mistakes," he added. "What Mao hoped to do, we should ensure we do even better."

Pressed after the news conference on whether China would one day set up a public memorial to those who suffered during the Great Leap Forward, or the chaos of the 1966-76 Cultural Revolution, Li answered cryptically: "We are making overall plans. It's being considered."

But there would be no atonement for the bloody crackdown on pro-democracy demonstrators around Tiananmen Square in 1989, which the Party these days labels a "political disturbance."

"We have already reached a solemn conclusion," Li said. "There's really nothing more to say."

(Editing by Nick Macfie)

First China aircraft carrier

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Aircraft carrier symbol of China's naval ambitions

By Damian Grammaticas BBC News, Dalian

It is the most visible symbol of China's rising military power. 

The giant, grey hulk of China's newest warship, 60,000 tonnes of steel, sits at a dockside in the port of Dalian, almost ready to set sail.

The People's Liberation Army (PLA) has been reluctant to say anything about its first aircraft carrier as it has not yet entered service. But it must be the military's worst-kept secret. It is there for all to see, somewhat incongruously, right behind Dalian's Ikea superstore.

The huge carrier has been years in the making, and it is an unmistakeable sign of China's expanding military and its desire to project Chinese power further beyond its borders than ever before.

"An aircraft carrier is a symbol of the power of your navy," says General Xu Guangyu, who used to serve in the PLA's headquarters and is now retired.

"China should at least be on the same level as other permanent members of the UN Security Council who have carriers."

Gen Xu now advises China's government on its military modernisation programme. Seven nations currently operate carriers - it used to be eight, but the UK has just withdrawn its last one from service and will have to wait several years for a new one to be built.

"It's also a symbol of deterrence," adds Gen Xu, "It's like saying, 'Don't mess with me. Don't think you can bully me.' So it's normal for us to want a carrier. I actually think it's strange if China doesn't have one."

Refit

Dalian is not just a major naval base, it is a major commercial port too. Its docks curve around a huge bay. There is an oil refinery, quays for cargo, and the shipyards where giant cranes tower over the hulls of massive container vessels and tankers under construction.

"The development of our armed forces is connected with the development of our economy," says Gen Xu.

"In energy supplies and trade we now have interests that span the globe. There are vital shipping routes in Asia, the Indian Ocean, Africa, and both sides of the Pacific that we need to protect. So our military strength needs to match the range of our economic and diplomatic activity."

The carrier is a relatively old design and it was not built by China. It was constructed in the 1980s for the navy of the USSR. Named the Varyag, it was never completed. When the Soviet Union collapsed, the rusting hull of the Varyag sat in dockyards in Ukraine.

As other Soviet warships were cut up for scrap a Chinese company with links to the PLA bought the Varyag claiming it wanted to turn it into a floating casino in Macau. It took several years to finally tow it all the way round the world to China, where it was then taken to Dalian. Reports claim it will be named the Shi Lang, after the Chinese admiral who conquered Taiwan in the 17th Century.

The PLA is focusing on both the navy and the air force in its modernisation, having identified them as relatively weak. When it is launched, the carrier will mark a significant leap forward for China's navy.



Watching all this closely is the United States. For more than half a century, since the end of World War II, the US Navy has operated its carrier battle fleets unchallenged in Asia and the Pacific. The US has 11 carriers of its own.

The US and China view each other's military programmes with suspicion. Many in the PLA believe America is trying to encircle it and prevent its rise.

America says China's military developments are opaque and shrouded in secrecy, its real intentions unclear.

"For the longest time China denied that they were going to pursue an aircraft carrier navy even trying to get the world to believe that the purchase of the first aircraft carrier from Ukraine was all about creating a new casino in one of their harbours," says Rick Fisher, a senior analyst at the International Assessment and Strategy Center, a think tank in Virginia, US.

"[It] is going to have aircraft comparable in capability to the recent fighters on American fighter decks in about two to three years time."

Shift of power Some observers believe China wants to build up to four carriers of its own.

Mr Fisher, who has spent 20 years studying China's military, says it has big ambitions.

 

The 300m (990ft) carrier, under construction in Dalian, is thought to be nearly finished

 "The aircraft carrier is part of China's fulfilment of its 2004 historic mission that the People's Liberation Army will increasingly defend the Communist Party's interests outside of China," he says. 

"By the 2020s China wants a military that will be globally deployable and will be able to challenge American interests where they need to be challenged."

Last month the visit of Chen Bingde, the Chief of the General Staff of the PLA, to the Pentagon was trumpeted as an effort to improve long-strained military relations between the US and China.

US and Chinese military bands played together as Gen Chen was hosted in America.
He tried to allay American fears by saying China would never seek to match US military power. China, he said, is way behind America.

"This visit to America, I saw America's military power, I feel stunned, not only do we have no ability to challenge America, but also the American warships and aircraft, America's strategy, it's a real deterrent for us."
China's military is generally believed to be 20 years behind America's in its development. But in its rapid expansion, China is focusing on weapons designed to blunt US military power.

The PLA has invested heavily in submarines. It is believed to be close to deploying the world's first "carrier-killer" ballistic missile, designed to sink aircraft carriers while they are manoeuvring at sea up to 1,500km (930 miles) offshore, and it is building its own stealth fighter aircraft along with advanced carrier-based aircraft built from Russian designs.

All of these can target US bases, US ships and US carriers in Asia. They will make it much more dangerous for US carrier fleets to operate close to China's coast, pushing them out further offshore.

In any future conflict they could make it much harder for the US to operate as freely as it would like. That in turn opens up more room for China to flex its own military muscles in Asia.

Having an aircraft carrier will then enable China to project power further than it has before. So looking on with concern are Vietnam, the Philippines and Malaysia, who all have territorial disputes with Beijing in the South China Sea.

And Taiwan, Korea and Japan that look to the US for their security may start to question how much America can really protect them in future. This may, one day, undermine US security guarantees and its influence in the region.

There is much work to do before China's aircraft carriers become a potent force. But, sitting in the port in Dalian, the carrier is a clear sign of China's naval ambitions and the shift of power that is likely to bring.

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US dollar died, debt default is unimaginable, "playing with fire", creditors say

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The Day the Dollar Died 

UD debt default is unimaginable  By Emily Kaiser  SINGAPORE, Agencies

SINGAPORE - Allowing a brief US debt default to force government spending cuts is a "horrible idea" that could destabilize the world economy and sour already tense relations with big creditors, government officials and investors said on Wednesday.

A growing number of US Republican lawmakers think a technical debt default might be a price worth paying if it gets the White House to accept deep spending cuts. This idea, once confined to the party's fringe, is seeping into the mainstream, Reuters reported on Tuesday.

"How can the US be allowed to default?" said an official at India's central bank. "We don't think this is a possibility because this could then create huge panic globally.

Indian officials say they have little choice but to buy US Treasury debt because it is still among the world's safest and most liquid investments. It held $39.8 billion in US Treasuries as of March, according to US data.

The US Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The US Treasury Department has said it will run out of borrowing room by August 2.

If Washington cannot make interest payments on its debt, the Obama administration has warned of "catastrophic" consequences that could push the still-fragile economy back into recession.

"It has dire implications for the economy at a time when the macro data is softening," said Ben Westmore, a commodities economist at National Australia Bank.

"It's just a horrible idea," he said.

The Republicans' theory is that bondholders would accept a brief delay in interest payments -- maybe a couple of days -- if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on.

But interviews with government officials and investors show they consider a default such a grim -- and remote -- possibility that it was nearly impossible to imagine.

"It just wouldn't happen," said Barry Evans, who oversees $83 billion in fixed income assets at Manulife Asset Management. "They would pay their Treasury bills first instead of other bills. It's as simple as that.

As for China, Washington's largest foreign creditor with $1.14 trillion in Treasuries as of March, a default could fray political and economic ties.

Yuan Gangming, a researcher with the government think tank Chinese Academy of Social Sciences, smelled some political wrangling behind the US debt debate as the 2012 presidential election draws nearer and said Republicans "want to make things difficult for Obama.

But with time running short before Treasury exhausts its borrowing room, Yuan said default was a real risk.

"The possibility is quite high to see a default of the US debt, which would harm many countries in the world, and China in particular," he said.



China warns U.S. debt-default idea is "playing with fire"

Emily Kaiser

(Reuters) - Republican lawmakers are "playing with fire" by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China's central bank said on Wednesday.

The idea of a technical default -- essentially delaying interest payments for a few days -- has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending, Reuters reported on Tuesday.

But any form of default could destabilize the global economy and sour already tense relations with big U.S. creditors such as China, government officials and investors warn.

Li Daokui, an adviser to the People's Bank of China, said a default could undermine the U.S. dollar, and Beijing needed to dissuade Washington from pursuing this course of action.

"I think there is a risk that the U.S. debt default may happen," Li told reporters on the sidelines of a forum in Beijing. "The result will be very serious and I really hope that they would stop playing with fire."

China is the largest foreign creditor to the United States, holding more than $1 trillion in Treasury debt as of March, U.S. data shows, so its concerns carry considerable weight in Washington.

I really worry about the risks of a U.S. debt default, which I think may lead to a decline in the dollar's value," Li said.

Congress has balked at increasing a statutory limit on government spending as lawmakers argue over how to curb a deficit which is projected to reach $1.4 trillion this fiscal year. The U.S. Treasury Department has said it will run out of borrowing room by August 2.

If the United States cannot make interest payments on its debt, the Obama administration has warned of "catastrophic" consequences that could push the still-fragile economy back into recession.

It has dire implications for the economy at a time when the macro data is softening," said Ben Westmore, a commodities economist at National Australia Bank.

"It's just a horrible idea," he said.

Financial markets are following the U.S. debate but see little risk of a default.

U.S. Treasury prices were firm in Europe on Wednesday, supported by a flight to their perceived safety on the back of the Greek debt crisis and worries about a slowdown in U.S. economic growth.

Marc Ostwald, a strategist with Monument Securities in London, said markets were working on the assumption that the U.S. debt story "will go away." But nervousness would grow if a resolution was not reached in the next five to six weeks.

'WOULDN'T HAPPEN'

The Republicans' theory is that bondholders would accept a brief delay in interest payments if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on.

But interviews with government officials and investors show they consider a default such a grim -- and remote -- possibility that it was nearly impossible to imagine.

"How can the U.S. be allowed to default?" said an official at India's central bank. "We don't think this is a possibility because this could then create huge panic globally."

Indian officials say they have little choice but to buy U.S. Treasury debt because it is still among the world's safest and most liquid investments. It held $39.8 billion in U.S. Treasuries as of March, U.S. data shows.

The officials declined to be identified because they are not authorized to speak to the media.

Oman is concerned about the impact of a default on the currency reserves of the sultanate and its Gulf neighbors.

"Our economies are substantially tied up with the U.S. financial developments," said a senior central bank official, who spoke on condition of anonymity.

"It just wouldn't happen," said Barry Evans, who oversees $83 billion in fixed income assets at Manulife Asset Management. "They would pay their Treasury bills first instead of other bills. It's as simple as that."

Monument's Ostwald called the default scenario "frightening" and said bondholders' patience would wear thin if lawmakers persisted in pitching this strategy in the coming weeks.

"This isn't a debate, this is like a Mexican standoff and that is where the problem lies," he said.

Yuan Gangming, a researcher with the Chinese Academy of Social Sciences, a government think tank, smelled some political wrangling behind the U.S. debt debate as the 2012 presidential election draws nearer and said Republicans "want to make things difficult for Obama."

But with time running short before the U.S. Treasury exhausts its borrowing room, Yuan said default was a real risk.

"The possibility is quite high to see a default of the U.S. debt, which would harm many countries in the world, and China in particular," he said.

(Reporting by Kevin Lim and Jong Woo Cheon in Singapore, Suvashree Dey Choudhury in Mumbai, Aileen Wang and Kevin Yao in Beijing, Abhijit Neogy in Delhi, Marius Zaharia in London and Umesh Desai in Hong Kong; Editing by Dean Yates and Neil Fullick)


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